Despite a 42 per cent correction since November 2010 peaks, the stock of Manappuram Finance has seen an eight-fold increase in its price in the last three years. Manappuram, which provides loan against gold, benefited from a 200 per cent rise in domestic gold prices over the last four years.

The rise in gold prices not only led to higher ticket size loans but also kept a check on the asset quality slippages.

Additionally, retail borrowers' preferring gold loan to personal loan and the rural customers' shift from pawn brokers to gold loan companies led to Manappuram's loan book going up from Rs 790 crore in March 2008 to a whopping Rs 9,029 crore in June. The branch network during this time expanded from 436 to 2,280.

The company's net interest margin was close to 15 per cent for the quarter ended June, quite high for a financing company.

The recent stock underperformance was due to sharp rise in borrowing costs and risk of their financing options (borrowing from banks) drying up. RBI has also disallowed banks from taking over loans originating from gold financing companies.

Banks often take this route to help achieve their priority sector targets. This may cap Mannapuram's loan book growth.

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