The Hindu Business Line : Manappuram General Finance and Leasing: Unattractive

INVESTMENT in the rights offer of Manappuram General Finance and Leasing (MGFL) can be avoided. The offer is being made to augment the long-term resources of the company.

However, the capital adequacy of the company is already substantially high at about 20 per cent.

The tier-1 adequacy of the NBFC alone is about 14.5 per cent. As such, the rights offer does not appear justified.

There may be a case for substituting debt funds with equity. Small companies are being forced to borrow at high rates from alternative sources such as banks.

MGFL is borrowing money from the public and through the issue of bonds at about 11 per cent. Given the competition in the retail finance market, a borrowing rate of 11 per cent might price MGFL out of the market. Hence, equity funds could make a difference.

However, the sum to be mobilised, of about Rs 1.50 crore, is not large enough to make any sizeable difference.

The stock is also quite illiquid at the bourses. Being a small-capitalisation company with revenues of less than Rs 10 crore, it is highly likely that the company will stay illiquid.

The company's dividend record is also not encouraging. It has maintained a dividend of 10 per cent for the last three years.

A dividend yield of 10 per cent is unattractive given the risks involved. In this context, avoiding the rights offer appears prudent.

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