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Better than expected operating show; incremental provisions may be required in non‐Gold businesses ‐ Retain BUY with 12m PT of Rs230

Manappuram delivered large earnings beat in Q3 FY21 on the back of strong operating performance and lower than expected provisioning. Overall AUM growth was marginally better‐than‐expectation at 3% qoq, supported by 2% growth in Gold Loans (though tonnage declined by 1% qoq) and 8% growth in MFI portfolio (disbursements at Rs13bn). The 20bps decline in funding cost drove an impressive 9% qoq growth in NII and a tight control over employee cost and overheads enlarged growth at PPOP level. Credit cost in the quarter was at Rs0.8bn, of which Rs0.5bn towards the MFI business.

With tonnage growth sluggish, price tailwinds behind and increased competition, the gold loans portfolio growth should come‐off over the coming quarters. MFI portfolio could attract more provisioning (6% held) even as collection efficiency normalizes (was 99% in Dec incl. arrears) due to a substantial PAR 0 portfolio (Rs9.4bn ‐ 15%+ of book). On the CV financing portfolio, the co. carries a 6% provisioning which may turn out to be adequate if the collection efficiency remains high as seen in recent months (110/112% in Nov/Dec incl. arrears). 

We project 12‐14% consol. AUM growth for FY22/23 even with modest growth in the mainstay gold loans business. Normalization of credit cost in MFI & CV businesses would improve overall RoA to 6%+. Earnings CAGR would likely be 15‐20% over FY21‐ 23. Valuation is undemanding at 1.2x FY23 P/ABV considering healthy earnings growth, strong profitability and robust capitalization. We retain BUY and 12m TP of Rs230.

Management Commentary

Key Takeaways

* Gold tonnage declined 1% qoq, due to inverse relationship between gold price ‐  Gold Loan AUM up 24.4% yoy and 2.4% qoq.  

* Portfolio LTV at 63% based on current gold price ‐ Average duration of GL at 75 days ‐ Auctions in Q3 at Rs36mn.

* The company has extended doorstep gold loan services across all its branches.  

* Management still expects 15% growth in the Gold Loan AUM in FY22.

* Asirvad AUM up by 7.8% qoq  ‐ Q3 disbursements at Rs13bn  ‐ annual portfolio growth will accelerate from hereon.  

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