MANAPPURAM FINANCE

Thrissur-based lender against gold collateral. Promoted by P.H. Nandakumar
Secret Sauce Low-cost, high-speed working capital lending against one collateral most Indians have: Old gold ornaments.
Financial Dashboard Sequioa Capital invested in 2006 at Rs. 130 a share. UK-based fund Ashmore-Alchemy invested a year later at Rs. 170 a share. Today, the share price is Rs. 677.
What the Smart Set Saw Lending to customers who aren't necessarily poor but who would never access a bank. All lending backed by gold!

Lending against gold is an age-old business and at the face of it quite simple. After all, what does a lender do? He assess the value of jewelry and gives out a loan on a substantial portion of its value. Theoretically, then, this should be a totally commoditised business. But then, there are some like Manappuram Finance that take it a professional notch higher.

 

Till 2006, the business trudged along with a growth rate of around 15-20 percent per year. Then in 2006, something changed. ICICI Bank saw a potential in bankrolling entities who were reaching out to the unbanked. And Nandakumar decided to step on the gas. He borrowed to boost his lending capacity, but also raised equity to keep a leash on his own gearing. As a result, Manappuram's network has grown from 50 branches in 2006 to almost 900 branches today.

 

Nandakumar likes to keep each branch very small and leanly staffed. When the business grows, he doesn't go for a bigger office but opens a new branch. "Our aim is to give a loan in five minutes. Today. it takes about 10-15 minutes still. We want to cut that down," says I. Unnikrishnan, president.

 

The gold lender's costing is his advantage. "Assume 20 minutes for a loan. So 25 loans a day? Assume 20,000 loan size. That's just Rs. 5 crore business. My costs are less Rs. 2 lakh per branch. It would be hard for a bank or even an NBFC to keep their costs so low," says Unnikrishnan. So players like Fullerton, Reliance Money, Shriram Chits and even Mahindra & Mahindra Finance tried getting into the gold loan business but haven't been able to scale up.

 

What's next? "There is no reason why can't grow to 2,000 or 3,000 branches across India. After all, gold is there in almost every Indian household." Ask Nandakumar whether he sees any risks and pat comes the reply: "Yes if the price of gold falls to zero then we are in trouble."

 

KPIT Cummins

KPIT Cummins’ stock has been a major outperformer recently, more than doubling in the last six months, wherein the BSE IT index and BSE Sensex gave flat returns. Most of the outperformance was in line with its improving business performance from a below-par first quarter. Besides improving outlook, semblance of stability returning from its largest client Cummins, after having declined in each of the previous four quarters, was a positive. Overall, KPIT delivered 4.4 per cent sequential revenue growth (in rupee terms) in December 2009 quarter. Pricing has improved sequentially, and integration of Sparta (acquired in November) not only added to its pricing power but also aided in garnering higher revenues from the US region.
Although the margins are comfortable at above 20 per cent, rupee appreciation, wage hikes and lower utilisation put pressure in the recent quarter. Expect some margin pressures in the coming quarters on these counts. In terms of segments, manufacturing segment has shown signs of revival (grew 10.7 per cent sequentially), while the semi-conductor vertical is yet to come onto the recovery path. Going ahead, auto electronics segment could be a growth driver in the next two-three years, while the company is focusing on the emerging markets to drive revenues in the business IT segment. For 2010-11, analysts expect its revenues and profits to grow by 15-16 per cent each. At Rs 112.2, the stock is trading at 8.8 times its 201011 estimated earnings, and can deliver 15-20 per cent returns in a year’s time.

NITESH ESTATES

Bangalore-based real estate developer; promoted by Nitesh Shetty.
Secret Sauce Uses the joint venture model to build some of the best addresses in Bangalore.
Financial Dashboard Och-Ziff Capital Management Group, one of the biggest hedge funds in the world, has quadrupled its investments since 2007.
What the Smart Set Saw A young entrepreneur with verve and a differentiated, low-risk business model in a fast growing business.
Guiding Light For now, it is adrenalin. Says Nitesh Shetty, 32, "We wanted to show that young companies can fight the big boys."

Nitesh Shetty was all of 24 when he started building some 80,000 square feet of property in the heart of Bangalore city where he grew up. Shetty, at that time, had no experience in the real estate business and his first tryst was a lost court case with a prominent city builder. Shetty had managed to convince the owner of the property to jointly develop the piece of land under his firms' brand name. The trick worked.

Today Nitesh Estates is developing over 8 million square feet of hotels, housing, commercial and retail space in the country. This includes the Rs. 700 crore Ritz Carlton project – the first one from the global chain in the country. Pitched against veterans like Delhi-based DLF and Unitech who accumulated land over decades, Shetty has made a name for itself by a joint venture model. Nitesh Estate doesn't buy land but instead it makes the land owner a partner and gives him a portion of the total revenue from the developed property. Not only does Shetty save the capital for buying the property, but he also saves a considerable time in land acquisition.

 

Shetty, a national tennis player and a close friend of Mahesh Bhupati, started an advertising business borrowing Rs. 12,000 from his mother. His company, Serve and Volley, got a big break when it won the contracts for advertising in the Delhi and Calcutta Metros. Shetty wanted to do something bigger and a property in M.G Road, Bangalore's high street bought him into the thick of the business.

 

In the real estate business, this far, only companies with big land banks attracted high valuations. Shetty, however, worked with an asset-light model through his joint ventures. After six years, Nitesh's 8 million sq.ft. under development compares well with new players like India Bulls real estate and Phoenix Mills. Shetty's projects are mostly in Bangalore but he is slowly expanding to other cities. The company is developing luxury villas in Goa and will shortly issue shares to raise capital to expand its operations. With cities like Mumbai redeveloping their old precints, Shetty is looking at a large opportunity that won't vanish in a hurry.