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In its Analyst/Investor Meet, Manappuram emphasized on 1) growth possibility of 8- 10% pa in Gold Loans with yields of 21-22%, 2) further ramping-up AUM share of nonGL products while improving their profitability, 3) likelihood of sustaining 18-20% consol. portfolio growth and RoE, and 4) promoters remaining fully committed in running operations and retaining the ownership (refuted rumors of selling stake). In our view, better customer acquisition/retention activity and some help from gold prices is required for envisaged growth in Gold Loans. Continuance of strong MFI cycle and completion of significant capital raise in Asirvad would be a key catalyst for the stock, besides sustained strong growth and profitability improvement in Non-GL and Non-MFI businesses. On consol basis, a reasonably brisk AUM growth and likely continuance of moderate credit cycle in Non-GL portfolios would underpin 18-19% RoE delivery over FY24-26. Notwithstanding the recent upmove, Manappuram still trades at an undemanding valuation of 5x P/E and 1x P/ABV on FY26 estimates. We retain BUY and raise 12m PT to Rs210.

Expects 8-10% growth in Gold Loans with maintenance of Portfolio Yield

Mr. Nandkumar expects Gold Loans portfolio to grow at 8-10% pa over the coming years without little or no help from gold prices and with portfolio yield being maintained at 21-22%. Key drivers of improved growth are likely to be 1) economic/business recovery led revival in gold loans demand from the core customer segment (small-ticket short-term loans which are more TAT/Flexibility sensitive), 2) stabilization of competition in higher-value longer-term gold loans segment (reasonable overlap with Banks within existing customers), 3) sustained traction in new customer acquisition and focus on improving ground-level culture/operations, 4) healthy growth expected in Gold Loans market driven by increasing formalization and sustained increase in gold stock (strong jewelry sale), 5) likely push to gold loans demand after RW changes by RBI on unsecured consumer credit and 6) expected approval from RBI to add branches (reduction in auction surplus underway). Management emphasized that Gold Loans would remain a major focus area even as consol. AUM continues to diversify.

Significant capital raise through IPO to ensure strong growth sustenance in Asirvad MFI

Asirvad MFI’s growth trajectory is expected to remain strong with asset quality stabilized and raising of significant growth capital (Rs15bn) from upcoming IPO. The co. has been growing ahead of the industry while keeping exposure per borrower under check. From below Rs3.5bn AUM when acquired in 2015 by Manappuram, the co.’s AUM stood at Rs109.5bn as of Sept’23. While being the 3rd largest NBFC-MFI, Asirvad is amongst the most regionally diversified microfinance player with Top 3 States (TN, BH & WB) contributing 1% of AUM, b) no State to eventually contribute >10% of AUM and c) exposure in a State to not exceed 5% of the market. With collections normalizing, Gross/Net NPAs have stabilized around 2.8-3%/1.2-1.4% in the recent quarters. Besides moderation of credit cost, manifestation of higher pricing and higher productivity has underpinned RoA/RoE of 4.5%/27% in H1 FY24.

Profitability of Non-Gold and Non-MFI AUM improving

Non-Gold and Non-MFI AUM stands at Rs80.5bn as of Sept’23 (21% of Consol. AUM) and includes Vehicle & Equipment Financing (VEF), MSME & Others Financing, Housing Finance and NBFC on-lending businesses. The combined portfolio of these products has grown by >3x in past two years and profitability has improved with scale and decline in NPL/credit cost. In VEF, Manappuram’s focus on financing used CVs/PVs and 2Ws (translating into strong growth and high portfolio yield of 18-19%) and improved underwriting/collection is underpinning reduction in delinquencies (11-12%) and improvement in RoA (1.5%). In MSME & Others (incl. Micro HL and Secured PL), the ATS across offerings is Rs0.4-0.6mn, blended yield is above 19%, bounce rate is low at 4-6% and 60-65% are gold loan customers, all of which manifest in 2.3% portfolio RoA. Affordable HL business is growing fast with loan ATS of Rs0.6mn, portfolio yield of 17.5% and RoA of 1.4% on current small scale of operations.

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