Manba Finance IPO analysis

Manba Finance IPO (initial public offering) will open for subscription on September 23, 2024 and close on September 25, 2024. Below is a breakdown of the vehicle financer's strengths, weaknesses and growth prospects to help investors make an informed decision.

Manba Finance IPO in a nutshell

• Quality: Manba Finance reported a three-year average ROE of nearly 11.3 per cent during FY22-24. It also recorded an average gross NPA (non-performing assets) of 4.2 per cent over the same period.
  
• Growth: During FY22-24, its AUM (assets under management) and PAT (profit after tax) grew 38 per cent and 80 per cent annually, respectively.
  
• Valuation: The stock is valued at a P/E (price-to-earnings) and P/B (price-to-book) ratio of 19.2 and 1.7 times, respectively, compared to its peers' median P/E and P/B of almost 19 and 2 times, respectively.
  
• Overview: Growing EV (electric vehicle) penetration, recovery in rural demand for two-wheelers and rising disposable income are expected to help Manba Finance scale up its operations. However, competition from other NBFCs (non-banking financial corporations) and banks poses a threat to Manba Finance's growth prospects.

About Manba Finance

Incorporated in 1996, Manba Finance is a non-deposit-taking NBFC headquartered in Mumbai. The company provides financing solutions for various vehicle categories, small businesses and personal loans. Two-wheeler loans comprise 86 per cent of its portfolio, and the remaining comprises loans for three-wheelers, electric two-wheelers, electric three-wheelers, used cars, small businesses and personal loans.

Presently, Manba Finance has 29 branches spread across six states in central, north and western India, with Gujarat and Maharashtra contributing to almost 90 per cent of its AUM (Rs 937 crore) as of FY24.

Strengths of Manba Finance

• Established relationships with dealers : Manba Finance has long-standing relationships with over 1,100 dealers, which includes more than 190 EV dealers. Having established relationships with such a sizable number of dealers is crucial as they serve as a primary source for generating leads on customers' funding needs.

Weaknesses of Manba Finance

• High dependence on a single product : Around 86 per cent of Manba Finance's portfolio comprises loans for two-wheelers. Given that the demand for two-wheelers is highly cyclical, a slump can significantly affect its financials.
  
• High NPAs and low provision : Manba Finance has an NPA of 4.2, which is higher than its peers. Moreover, its provision coverage ratio stood at just 20 per cent in FY24, much lower than its peers. This raises questions about the company's management and asset quality.

Risk report

Management

• Is Manba Finance free from regulatory penalties?
  Yes. The company's management is free from any regulatory penalties.
  
• Does the company provide for its non-performing assets (NPAs) adequately? Specifically, is the provision-to-gross NPAs ratio more than 50 per cent?
  No. Manba Finance has a very low provision coverage ratio, standing at 20 per cent as of FY24.
  
• Do stocks comprise a significant part of the compensation of the top five managers (more than 50 per cent)?
  No. ESOPs (employee stock ownership plans) don't constitute a major part of the top-level management's remuneration.

Financial strength and stability

• Does Manba Finance have a fresh slippage-to-total advances ratio of less than 0.25 per cent?
  No. The ratio of net slippage to total advances stood at 3.4 per cent as of FY24. Fresh slippages are loans that become NPAs in a given financial year.
  
• Did the company generate a current ROE of more than 12 per cent and an ROA of more than 1 per cent?
  No. While it reported an ROE of 11.3, its ROA stood at 2.5 per cent in FY24.
  
• Has the company increased its loan book by 20 per cent annually over the last three years?
  Yes. Manba Finance's loan book grew 37.5 per cent annually between FY22 and FY24.
  
• Has the company increased its NII (net interest income) by 20 per cent annually over the last three years?
  Yes. Manba Finance's NII grew around 35 per cent per annum between FY22 and FY24.
  
• Is there a direct relationship between the increase in Manba Finance's loan book and the rise in net interest income (NII)?
  Yes. Although the growth in NII and advances had a direct relationship, the pace of NII growth was relatively lower due to a reduction in its yields (from 22.1 per cent to 21.4 per cent between FY22-24).
  
• Is Manba Finance's capital adequacy ratio more than 15 per cent?
  Yes. The company reported a capital adequacy ratio of nearly 25 per cent as of FY24. Capital adequacy ratio measures how well a company can meet its obligations and absorb losses.
  
• Can the company run its business without relying on any external funding in the next three years?
  Yes.Its high capital adequacy ratio of 25 per cent, coupled with the IPO proceeds, should ensure the sustainability of Manba Finance's operations.
  
• Did the company generate an average NIM of over 3 per cent in the last three years?
  Yes. Its average three-year NIM stood at 10.9 per cent during FY22-24.
  
• Are the company's three-year average gross NPA and net NPA ratios below 1 per cent and 0.5 per cent, respectively?
  No. Manba Finance reported an average gross NPA ratio of 4.2 per cent and an average net NPA of 3.5 per cent in the last three years.
  
• Does Manba Finance have a cost-to-income ratio of less than 50 per cent?
  No. It reported a cost-to-income ratio of 54.4 per cent in FY24.

Growth and business

• Will the company be able to scale up its business?
  Manba Finance's growth prospects seem positive, given the rising demand for electric two-wheelers, which comprise the majority of its portfolio. This, coupled with the recovery of the rural economy, is expected to help the company scale up its business.
  
• Does the company have a loan book of more than Rs 1 lakh crore?
  No. It reported an AUM of Rs 937 crore as of FY24.
  
• Does the company have a recognisable brand truly valued by its customers?
  No. There are many NBFCs and banks offering two-wheeler loans at competitive rates, making it challenging for Manba Finance to establish a strong brand presence in the market.
  
• Does Manba Finance have a credible moat?
  No, since the company operates in a commoditised market.
  
• Is the level of competition faced by the company relatively low?
  No. Since there are many banks, SFBs (small-finance banks) and NBFCs present in the vehicle finance business, there's a high likelihood that banks with the lowest borrowing costs will compete aggressively in this market.

Valuations

• Is the company's P/E ratio lower than its peers' median level?
  No. It is valued at a P/E ratio of 19.2 times, which is higher than its peers' median level of nearly 19 times.
  
• Is the company's P/B ratio lower than its peers' average level?
  Yes. It is valued at a P/B ratio of 1.7 times, lower than its peers' median level of 2.2 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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