Shares of Manappuram Finance surged by 6% on the National Stock Exchange (NSE) as news broke that Bain Capital, a leading private equity firm, has entered a definitive agreement to acquire an 18% stake in the gold financier. This stake acquisition will entail an investment of ₹4,385 crore, marking a significant step for both the company and the investors involved.
The deal, structured via a preferential allotment of equity and warrants at ₹236 per share, comes at a 30% premium over the average trading price from the last six months. The acquisition marks Bain Capital's joint control over the company alongside its existing promoters who will retain a 28.9% stake post-transaction. This investment aims to facilitate Manappuram's next phase of growth, enhancing operational excellence and expanding presence in key financial segments.
According to a joint statement, the capital infusion is designed to strengthen Manappuram Finance's operational capabilities as it looks to bolster its leadership in the gold loan market, which constitutes a significant portion of the company's revenue.
"As we embark on the next phase of our growth, we are delighted to welcome Bain Capital as our partner," says V.P. Nandakumar, MD & CEO of Manappuram Finance. "Their leadership team is renowned for its commitment to excellence, and their sharp focus on growth will unlock fresh opportunities for our business." The positive sentiment surrounding the deal is reflected in the stock price, which touched ₹230, close to its record high level of ₹230.40 achieved in July 2024.
The deal also triggers a mandatory open offer for the acquisition of an additional 26% stake in the company, which will be priced similarly at ₹236 per share. Depending on the extent of subscription, Bain Capital’s stake may increase to as much as 41.7% on a fully diluted basis, after the inclusion of shares from the open offer and any conversions from warrants.
The existing promoters of Manappuram Finance, which include Nandakumar V P and his family, are committed to remaining fully invested in the company despite the entrance of Bain Capital, an indication of confidence in the business's future growth trajectory. However, analysts have expressed cautious optimism, highlighting that while the partnership presents a promising opportunity for development, it also demands effective management to navigate inherent challenges.
"This strategic investment aims to fuel the company’s next phase of growth and drive transformation by enhancing operational efficiency and governance, many analysts concur. The participation of Bain Capital, which has a robust history of scaling businesses alongside existing promoters—including notable firms like L&T Finance—underscores the potential for a transformative journey ahead," notes an analyst from ICICI Securities in a recent report.
Despite being on an upward trajectory, Manappuram Finance has encountered challenges; its profit for the third quarter of the financial year 2025 has seen a decline, halving to ₹282 crore, impacted by rising default rates in the microfinance segment and a prohibition on issuing new loans for a quarter. Nevertheless, the company reported a 17% revenue increase from its gold loan portfolio, accounting for 75% of total revenue in light of increasing gold prices.
In other developments, Manappuram's microfinance arm, Asirvad MicroFinance, has decided to withdraw its initial public offering draft papers due to the uncertain market environment. The market's response to the Bain Capital investment was notable, with the shares witnessing a significant uptick following the announcement. A total of 37.5 lakh shares were reported to have changed hands via a block deal, indicative of strong investor interest coinciding with this transformative event.
Market analysts have increased their price targets for Manappuram Finance following the deal, setting expectations with CLSA raising its target to ₹270 from ₹225 and Jefferies lifting their target to ₹235. DAM Capital has also adjusted its target to ₹255, reflecting a positive outlook on the partnership's anticipated effects on the firm's growth and governance.
In the face of this significant turning point for the company, experts recommend close monitoring of the execution phase under Bain Capital's control. The next step will involve the appointment of a new CEO to steer Manappuram Finance through this transition. While the recent uptick in share prices reflects investor optimism, analysts advise caution, suggesting potential profit bookings given the stock's recent ascent.
As market conditions and company growth strategies evolve, how effectively Manappuram Finance leverages this sizeable investment from Bain Capital will be paramount in determining its future trajectory.
