Shares of Manappuram Finance surged 6% after analysts noted that Bain Capital's plan to acquire an 18% stake and jointly control the gold loan provider would facilitate its management succession.
Bain Capital will subscribe to Manappuram's shares and warrants at 236 rupees each, representing a 9% premium over Thursday's closing price of 217.5 rupees. Following this $508 million investment, Bain will share control of Manappuram with other large shareholders designated as 'promoters' under Indian regulations.
Manappuram's stock climbed as much as 6.3% to reach 231.08 rupees by 12:05 p.m. IST, marking its highest level on record. Founder and CEO V.P. Nandakumar, who has led the company for nearly four decades, will transition to the role of non-executive chairman after the investment, prompting investors to consider nominations for his successor.
Bain Capital will also have the ability to influence key strategic decisions, including the nomination for crucial leadership positions, such as the CEO. Analysts from Jefferies and CLSA view this capability as a significant advantage stemming from the deal.
Analysts at CLSA indicated a likelihood of a healthy re-rating of Manappuram's stock as new management steps in. Jefferies and CLSA subsequently raised their price targets for the stock by 14.6% and 20%, respectively, maintaining their "buy" and "outperform" ratings.
The transaction arrives at a time when record gold prices have heightened the attractiveness of gold loans, and it is expected to close in the next financial year, supporting growth in Manappuram's gold loan business, which accounts for 75% of the company's overall revenue.
Jefferies also mentioned that a portion of the funds raised from the stake sale may help offset losses in Manappuram's microfinance business, which has faced challenges due to market uncertainties. The company announced that its microfinance unit, Asirvad Micro Finance, would withdraw its IPO draft papers.