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Baring PE India Ups Bet On Gold Loan Retail Business

04 November, 2011

Baring Private Equity Partners India (Baring PE India) has placed its second bet on India’s gold loan business by picking up a 1.4 per cent stake in Manappuram Finance Ltd, which is backed by a host of other private equity firms like India Equity Partners and Sequoia Capital India.

This comes after private equity firms’ pre-IPO investment in Muthoot Finance, in which it has also increased its stake through market purchases. Baring PE India has invested a combined sum of approximately Rs 250 crore across Muthoot and Manappuram, according to VCCircle estimates.

It is estimated that the total market for loans against gold stands at Rs 1,20,000 crore between the banks and NBFCs in India, according to a report by Research and Markets. Players in this space include banks like SBI, Andhra Bank and HDFC Bank) besides non-banking finance companies (NBFCs) like Muthoot Finance, Muthoot Pappachan Group, and Manappuram Finance.

Baring PE India spokesperson declined to comment on this article.

Manappuram Finance

Baring PE India has picked up the stake in Manappuram over the last 3-4 months for Rs 50-70 crore, according VCCircle estimates. The shares in Manappuram were purchased during the July-September quarter, when the share price of the company was trading between Rs 43 to Rs 60 per unit.

This comes as Sequoia Capital India, through one of its entities, has picked up a 1.55 per cent stake in the company during the same period. Sequoia had invested $14 million in Manappuram through a fresh issue in 2007 and exited through a market sale in April 2010, making 5x in the process. This time Sequoia has bought into the company from the markets.

Manappuram reported a 124.8 per cent jump in net profit to Rs 135.30 crore with total income rising 156.6 per cent to Rs 625.49 crore in Q2FY12 over Q2FY11.

Muthoot Finance

In July 2010, Baring PE India had invested Rs 78 crore in India’s largest gold loan company Muthoot Finance, which was listed in May this year. Baring also invested in the company’s IPO as one of its anchor investors.

Post the issue, the PE firm appears to have picked up another 1.32 per cent stake through Baring India Pvt Equity Fund III Listed Investments Ltd from the markets over last 5-6 months. This stake would have cost the private equity firm around Rs 80-85 crore, according to VCCircle estimates.

Baring PE India is the largest institutional shareholder in Muthoot Finance with a 3.04 per cent stake, followed by other investors like Matrix Partners (2.11 per cent) and UK’s Wellcome Trust (1.34 per cent).

Why Lending Against Gold Is Hot Biz?

Lending against gold has been a fairly fast growing market in India due to factors like large stock of gold stored with consumers due to cultural factors and lower risks of consumers defaulting on loans. And with gold prices reaching new highs on the backdrop of global uncertainty, this industry has only flourished.

India has an estimated 18,000 tonnes of gold, amounting to about 10 per cent of the world stock worth over $800 billion. The market potential for gold loans in India is vast as less than 10 per cent of private gold has been monetised. Not surprisingly new players are looking at the business including firms like SKS Microfinance.

 


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Baring PE India Ups Bet On Gold Loan Retail Business

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