Manappuram Finance shares to give big upside after Q3 results, says brokerage

On reason for being bullish on Manappuram Finance shares, the brokerage said, ‘We increase our FY25 NII estimates by 3% given decrease in cost of funds from 8.9% to 8.7%. Our FY23 and FY24 estimates remain unchanged. Manappuram Finance (MGFL) reported 3% QoQ decline in gold loan AUM, whereas yields were up by 50bps to 22.4% as against 21.9% in Q2FY23. The going seems to be tough for gold financiers to achieve gold AUM growth, amid intense competition and pricing pressure. We believe company is on the right track in ensuring margins are protected. Conversely microfinance, commercial vehicles, home loan, msme/personal loans are performing strongly thereby compensating for the slowdown in the gold loan business. Maintain ‘BUY’ rating on the stock. Re-rating can happen once gold loan AUM starts seeing growth again.”

Highlighting upon the asset quality of the company, Prabhudas Lilladher report said, “GNPA reduced to 1.6% for standalone business (gold) from 2.0% in Q2FY23. MFI business saw sharp improvement in GNPA to 6.7% vs 8.8% in Q2’23, and credit cost declined 34% QoQ. For housing, GNPAs were largely stable at 5.4% vs 5.5% (Q2FY23) and vehicle finance GNPAs reduced to 3.1% vs 3.6% last quarter. Asset quality should improve further, going forward, and management has guided for further reduction in credit cost in microfinance business.”

‘AUMs at Rs319bn reported growth of 4.9%YoY and 4.0%QoQ, led by growth in non-gold AUM (+15.6%QoQ/33.3%YoY) whereas gold loan AUM declined 9%YoY and 3%QoQ. Gold holdings declined by 4.5% QoQ (down 14.5% YoY) to 60 tonne. Teaser rates were repriced and competition intensity from banks remained elevated. Other segments performed very well, MFI AUMs grew 13.3% on a QoQ basis, VF AUMs grew 12.0% and HLs grew by 9.0%QoQ and other loans including MSME continued strong momentum with 34.7% QoQ growth. PAT declined 3.9% QoQ, due to lower NII and lower other income,” brokerage added.

The brokerage went on to add that company is is holding excess liquidity of Rs. 20bn to meet redemption of 3y senior secured fixed rate notes, due in Jan-23; negative carrying cost of which also had an impact on profitability. Opex rose by 4.4% on QoQ basis and remains elevated. NIMs remained stable at 14.0% vs 14.1 in Q2FY23 and 12.4% in Q3FY22.

On suggestion to investors in regard to Manappuram Finance shares, Prabhudas Lilladher report said, “We maintain our ‘BUY’ rating at TP of ₹144 (unchanged) on 1.1x Sep’24E P/ABV.”

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