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Gold Franchise Anchors Growth; Non-Gold Recovery Work in Progress

Est. Vs. Actual for Q2FY27: NII – BEAT; PPOP – BEAT; PAT – BEAT

Changes in Estimates post Q2FY27

FY27E/FY28E/FY29E (in %): NII: 3.4/3.1/3.0; PPOP: 4.9/3.3/2.4; PAT: 1.2/-1.1/-2.6

Recommendation Rationale

* Gold Loans Remain Core Growth Engine; Portfolio Increasingly Gold-Centric: Manappuram’s Q2 AUM growth was robust, with gold loans (GL) being the primary growth driver (+6% QoQ), with its mix improving to 83% in the consol. AUM vs 69/82% YoY/QoQ. Customer acquisition momentum remained healthy, with the company adding 3.15 Lc new customers during the quarter, taking its outstanding customer base to 27.2 Lc, up 12/3% YoY/QoQ. Importantly, growth remained resilient despite some moderation in gold prices from recent peaks, indicating that demand is being supported by both elevated collateral values and underlying customer requirements. Management reiterated its gold loan AUM growth guidance of 25-30% for FY27, with the expectation of delivering ~30% growth, supported by customer acquisition, branch expansion and digital distribution.

* MFI Recovery Continues; Vehicle Finance Remains Stressed: Performance across the non-gold businesses remained mixed, with a gradual recovery in microfinance contrasting with continued stress in vehicle finance and MSME lending. In the MFI portfolio, management indicated that the earlier phase of portfolio contraction is largely behind the company, with the business now witnessing a gradual recovery. At present, the newly sourced MFI portfolio stands at 79% vs 23/68% YoY/QoQ. However, the focus remains on calibrated growth, with no compromise on underwriting standards and collection discipline. Overall, the non-gold businesses are showing gradual improvement in MFI, though the legacy stress in vehicle finance and MSME lending continues to warrant attention. However, management indicated that the non-gold businesses continue to remain integral to Manappuram’s longer-term growth strategy.

* Branch Expansion to Accelerate in H2; Digital Sourcing to Contain Incremental Costs: Management reiterated its commitment towards distribution expansion, with a plan to add 500 branches during FY27. Manappuram has opened 100 branches in H1, with the management indicating that work on another 250 branches is underway and these are expected to be operational over the next couple of months. While the pace of additions in H1 has been modest, management remains confident of achieving its branch addition target. Importantly, the company does not expect the expanded branch network to translate into a commensurate increase in employee costs. This is being facilitated by the increasing adoption of digital gold loans, technology-led servicing and rationalisation of field employees. Digital gold loans already constitute ~91% of the total gold loan book, allowing the existing branch network to support incremental business without proportionate staff additions. Management expects opex-toAUM to decline as the franchise scales up, despite the planned increase in branches.

Sector Outlook: Positive

Company Outlook:

Manappuram’s near-term growth trajectory is expected to remain anchored by the gold loan franchise, with customer additions, digital sourcing and the planned branch expansion providing support to the guided 25-30% FY27 AUM growth. Alongside this, the non-gold portfolio is expected to see a gradual recovery, led by improving momentum in MFI, while calibrated disbursements and a focus on collection efficiency should support a more sustainable recovery. However, the pace of revival in the non-GL book is likely to remain uneven, with elevated stress in vehicle finance and MSME lending constraining the broader non-gold portfolio. On profitability, the expected increase in borrowing costs towards 9% by FY27 exit, coupled with competitive pricing in gold loans, could moderate margin expansion, partly offset by operating leverage from higher digital penetration and branch productivity. Overall, Manappuram’s RoA trajectory is on an improving trend, with expectations of FY27-29E RoA/RoE settling at 3.1-3.2%/14-16%.

Current Valuation: 1.7x Sep’28E ABV; Earlier

Valuation: 1.9x FY28E ABV Current TP: Rs 400/share; Earlier TP: Rs 415/share

Recommendation: We maintain our BUY recommendation on the stock.

Key Highlights

* Borrowing Cost Trajectory to Moderate Margins: Manappuram has been able to broadly maintain CoF despite volatile market conditions. However, the outlook is relatively cautious, with the company expecting CoF to increase by 25-30bps by exit-FY27, taking the cost towards the 9% level, amid the rate hike cycle. This is broadly in line with the guidance provided during the previous quarter and reflects the anticipated movement in market borrowing rates. On the asset side, the combined gross yield on bullet and EMI-based gold loan products is expected to remain in the 17.5-18.5% range. Management acknowledged that the competitive intensity in the gold loan market remains elevated and reiterated its strategy of maintaining attractive lending rates to retain existing customers while continuously acquiring new customers. • Management Attrition & Leadership Transition Remains Monitorable; New CEO Expected in Jan’27: Management stability remains an important monitorable amid the recent senior management exits following the change in ownership. Management indicated that the new CEO is expected to take charge shortly (Jan’27), while the process of identifying a suitable candidate for the CTO position is also underway. Manappuram is currently evaluating candidates with reputed industry backgrounds and relevant technology experience.

* GL Stage 2 Spike Remains Key Monitorable; Largely Attributes to Product Transition: Manappuram’s gold loan asset quality witnessed some deterioration during the quarter, with Stage 2 (S2) assets increasing to ~5% of the gold loan portfolio from ~0.5% in Q1. Management attributed the sharp increase to customer behavioural adjustments following the regulatory changes implemented in Apr’26 and the introduction of shorter-tenor and EMI-based gold loan products. Historically, customers have been accustomed to traditional one-year bullet repayment structures, whereas the newer products require more frequent servicing. Consequently, a certain segment of borrowers has not fully adapted to the revised repayment schedules, resulting in delayed payments and migration into S2. However, management clarified that the increase is predominantly behavioural rather than indicative of any material deterioration in the underlying repayment capacity of customers. Early collection trends have been encouraging, with a significant number of S2 customers (60-65% of customers) returning to regularise their accounts through full or partial repayments, thereby avoiding the need for gold auctions. The company is intensifying customer outreach and educating borrowers regarding the repayment requirements of the newer products. * Non-Gold Asset Quality Remains Weak: In Q2, Manappuram’s GL GNPA remained resilient at 1.04%, with the rest of the GNPA being attributed to the non-gold portfolio. Management indicated that the company has recognised the emerging asset quality risks proactively and has incorporated additional prudent management overlays over and above the ECL requirements. These overlays are being assessed each quarter dynamically and are intended to act as a counter-cyclical buffer against potential portfolio volatility.

Outlook

Backed by expectations of strong AUM growth led by gold loans, we revise our AUM estimates marginally upwards by 2-3% over FY27-29E. While higher CoF will result in margin compression, stable gold yields and a higher mix of gold loans should partially cushion margin compression. We build in 15-20bps of NIM compression over FY28-29E. However, given stronger growth, we revise our NII estimates upwards by 3-4% over FY27-29E. Operating efficiency despite investments in the branch network and range-bound credit costs should drive healthy earnings growth, while enabling Manappuram to deliver RoA/RoE of 3.1-3.2%/14-16% over FY27- 29E.

Valuation & Recommendation

We value Manappuram at 1.7x Sep’28E (vs current valuations of 1.4x Sep’28E ABV) to arrive at a target price of Rs 400/share, implying an upside of 25% from the CMP. We maintain our BUY recommendation on the stock.

Key Risks to Our Estimates and TP

* The key risk to our estimates remains a slowdown in overall credit growth, which could potentially derail our earnings estimates.

* The scalability of non-gold products and any asset quality concerns remain key monitorables.

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