Baring Private Equity Partners India (Baring PE India) has increased its stake in Kerala-based gold loan company Manappuram Finance Ltd to 11.56 per cent. The PE firm has put in close to an estimated Rs 25 crore to buy additional 2 per cent stake in the firm over the past three months.
It raised its holding by 1 per cent in the April-June quarter and thereafter, bought another 1 per cent over the past two weeks. The last tranche of 1.5 million shares was acquired on July 16, 2013, as per a disclosure to the stock exchanges.
Manappuram Finance scrip shot up 10 per cent on the BSE to hit the upper circuit for the day at Rs 12.88 a share, in a strong Mumbai market on Friday.
Baring PE India bought additional stake in the listed gold loan firm through two entities, Baring India Private Equity Fund II (Fund 2) and Baring India Private Equity Fund III (Fund 3), via open market transactions.
It started buying into the firm in late 2011, beginning with 1.4 per cent stake when the share price was over Rs 50 a piece. It had been gradually building its stake as the company’s share price went into a tailspin and earlier this year, increased its holding to around 9.5 per cent. Till date, it is estimated to have put in over Rs 225 crore in Manappuram.
The additional stake purchase through open market transactions seems to be part of a move to bring down the average cost of share acquisition at a higher price in the past. Based on the current share price, the PE firm is sitting on almost 45 per cent unrealised loss on its investment in the company.
Manappuram Finance is one of the two large gold finance firms, the other being Muthoot Finance, which is also a portfolio company of Baring PE India. The company is also into asset financing and fee-based financing. It is backed by a host private equity firms including Sequoia Capital and India Equity Partners, among others. In January this year, India Equity Partners part-exited the company.
Manappuram has been facing pressure on its financials, though. After growing at a break-neck pace between FY09 and FY12, it has seen decline in revenues and serious impact on profits in the last financial year. With the decline in gold price, the quantum of lending against gold is expected to suffer and that could further shrink its earnings going forward. For the fourth quarter ended March 31, 2013, the firm saw a sharp decline in revenues over the year-ago period and reported a net loss of Rs 141 crore as against a net profit of Rs 187 crore in Q4 FY12.
(Edited by Sanghamitra Mandal)