Overview

An agreement for Bain Capital to buy a majority share in Manappuram Finance is almost finalized. A secondary share sale by promoters and further funding from Bain are part of the deal, which may raise Bain’s ownership to 46%. It is anticipated that the deal will result in early joint operations and a new CEO.

Details of the Deal

Bain Capital is negotiating a deal with Manappuram Finance’s promoters to acquire a majority share in the Kerala-based gold loan provider and non-bank lender. The Reserve Bank of India removed limitations on the latter’s subsidiary, Asirvad Micro Finance, a month ago. The promoter group, led by managing director and CEO Nandakumar VP, currently owns 35.25% of Manappuram, which has a market valuation of Rs 17,000 crore based on its BSE closing share price of Rs 200.85 on February 21, 2025.

While the preferred allocation is expected to be priced at a premium of 12.5-15% over the current market price, the secondary share sale will be priced at 22.5-25% above Friday’s closing price, according to the sources.  The blended price is likely to be Rs 237-240 per share.

The transactions, which will result in Bain acquiring a quarter of the company, will be followed by a voluntary open offer for an additional 26% interest due to a change of control, at a price comparable to the secondary share sale.  If the open offer is fully subscribed to, Bain might wind up controlling up to 46% of the new equity capital base, spending Rs 9,000–10,000 crore.

Managerial changes on the way

Even though the company will initially be controlled jointly, Bain is considering affirmative rights, which will give it management control. The Boston-based fund will also hire a new CEO, with Nandakumar and his family members taking on non-executive roles in the organization.

Stock Performance of Manappuram

Manappuram’s stock has climbed 36.67% in the last three months ahead of the transaction.  However, the regulatory intervention in October of last year, which barred IPO-bound Asirvad Microfinance from making new loan disbursements due to inadequacies in its pricing policy and evaluation of borrowers’ income and debt, caused a 37.5% drop in the share price from its 52-week high.

Manappuram Finance shares rose 4% to a high of Rs 209 on the BSE in early trade on Monday, after negotiations between the company Bain Capital neared a conclusion.

Manappuram’s history for buy-ins or M&A

Manappuram has flirted with many PE and shadow banks, including IDFC and Poonawalla Finance, as well as PE funds like Carlyle, over the years to investigate a buy-in, business carve-out, or even a merger of operations, but nothing has come of it. Nandakumar’s succession was called into question when his daughter Sumitha Jayasankar was appointed executive director to the board and many anticipated her to take over the reins.

Financial Performance of Manappuram

Manappuram’s consolidated assets under management (AUM) increased 9.5% year on year to Rs 44,217 crore by the end of December. The AUM, however, fell 3.3% sequentially due to the regulatory ban on Asirvad’s expansion. Manappuram’s core gold loan business increased 18.8% year on year to Rs 24,504 crore, accounting for 55.4% of the combined AUM.

Asirvad, like its microfinance peers, is still under pressure, requiring Manappuram management to provide direction on a shift toward secured lending — both gold and non-gold loans. The company lost Rs 189 crore in the third quarter due to a 5.8% increase in gross non-performing assets, despite wiping down bad loans worth Rs 400 crore.

It also violated financial covenants governing its borrowings and is negotiating with its lenders for a waiver of their right to seek quick repayment of debts.  So far, no lender has requested immediate payback following this noncompliance. Manappuram owns 97.6% of the microfinance subsidiary, which the group acquired in 2015 and expanded in quest of higher returns.

Potential Risks

Asirvad’s profitability has been impacted by collection challenges in the microfinance sector caused by a variety of factors, including climatic disruption, dilution of the joint liability group model, weekend borrower discipline, and external influences on microfinance borrowers, according to Nandakumar in a post-earnings analyst call. Furthermore, he stated that it has implemented extensive corrective steps to rationalize the cost and disbursement with rigorous underwriting.

Expert views

The organised gold loan market is expected to grow to Rs 15 lakh crore by March 2027, from Rs 7.1 lakh crore at the end of FY24. Morgan Stanley analysts believe the company’s valuations are low, with a standalone share price of about nine times estimated profits per share for fiscal 2026, which it claims is among the lowest in the industry in terms of return on equity.

Conclusion

Thus, Bain Capital’s acquisition of a majority stake in Manappuram Finance will mark a remarkable change for the company and could increase Bain’s stake to 46%. Even with recent shifts in regulation and scrutiny on the microfinance subsidiary Manappuram, Asirvad, the company’s gold lending division is prospering.  In addition to the change in a recently appointed CEO, the new structure will drive further focus toward the facilitation of secured loans. Manappuram is likely to experience some growth in revenues due to the anticipated expansion in the gold loan market, but the doubts raised from Asirvad’s problems still linger.

The image added is for representation purposes only