Neutral Manappuram Finance Ltd For Target Rs.215 by Motilal Oswal Financial Services Ltd
Operationally weak quarter; MFI stress keeps credit costs high
Earnings miss; gold loan AUM largely flat QoQ
* Manappuram Finance’s (MGFL) consol. PAT in 3QFY25 declined ~52% YoY and ~51% QoQ to ~INR2.8b (~44% miss). NII grew ~10% YoY to ~INR15.9b (in line) and PPoP was flat YoY at ~INR9.3b (~9% miss).
* Consol. credit costs stood at ~INR5.5b (vs. MOFSLe of ~INR3.5b). Annualized credit costs for the quarter rose ~260bp QoQ to 4.9% (vs. PQ: ~2.3%). Higher credit costs were primarily attributable to the MFI business.
* Gold AUM was largely flat QoQ and grew ~18% YoY to ~INR245b. Net yields on gold loans remained stable at ~22.7%. Net yields on the standalone business rose ~20bp QoQ to 22.2% and standalone CoB rose by ~10bp QoQ to 9.2%, resulting in a ~10bp increase in spreads.
* Standalone (Gold +Vehicle + On-lending + MSME) GNPA/NNPA ratios rose ~10bp/20bp QoQ to ~2.5%/~2.3%. Asset quality deteriorated across nongold segments, with GS3 increasing in vehicle finance (~5.2% vs. ~4.2% in 2Q) and housing finance (~3.9% vs ~3.3% in 2Q).
* Management said that GNPA in vehicle finance rose due to macroeconomic challenges, with higher delinquencies in the 2W and farm equipment segments. However, improvements in vehicle finance have been evident since Jan’25.
* MGFL plans to expand its secured lending portfolio, prioritizing secured lending in MSME and vehicle finance within its non-gold business segments. However, capital allocation will be limited to ~10% of net worth.
* We cut our FY25/FY26/FY27 PAT estimates by ~15%/5%/3% to factor in lower loan growth and higher credit costs. Over FY24-27, we estimate a CAGR of 15%/13% in gold/consolidated AUM and ~10% in consolidated PAT, with consolidated RoA/RoE of ~4.7%/18% in FY27. Reiterate our Neutral rating on the stock with a TP of INR215 (based on 1.1x Sep’26E consolidated BVPS).
Gold AUM largely flat QoQ; gold tonnage declines sequentially
* Gold AUM was largely flat QoQ and grew ~18% YoY to ~INR245b. Gold tonnage declined ~4% QoQ to ~57.3 tons. Within gold loans, LTV rose ~2pp QoQ to ~60%, while the average ticket size (ATS) in gold loans rose to INR64.3k (PQ: INR62.5k). Gold loan customer base declined to ~2.6m (PQ: 2.66m).
* Management shared that gold loan growth in 3QFY25 was sluggish because of festive seasonality. Management guided for gold loan growth of ~15- 20%. The decline in gold tonnage was because of higher gold prices.
Asirvad MFI: Credit costs elevated; GS3 up ~150bp QoQ
* Asirvad’s GNPA rose ~150bp QoQ to 5.8% and NNPA rose ~50bp QoQ to ~2.5%. Credit costs stood at ~INR4.7b (PQ: ~INR2b), translating into annualized credit costs of ~17% (PQ: ~7%). Technical write-offs stood at INR4b during the quarter (vs. INR400m in 2QFY25).
* Asirvad AUM declined ~13% YoY and ~18% QoQ to ~INR100b. Asirvad reported 3QFY25 loss of INR1.9b (vs. PAT of INR750m in 2QFY25).
* Management guided for MFI loan growth of ~10%-12% over the next 2-3 years. The company expects collection efficiency to go up to ~99%, driven by tighter underwriting norms, and expects its MFI operations to normalize within the next two-three quarters.
Highlights from the management commentary
* Regulatory changes: MGFL will be strictly monitoring the LTV ratio at the time of disbursement, ensuring it remains strictly below 75%, while also closely tracking interest accruals. In case of a minor deviation of 5%, an SME notification will be issued. If the LTV reaches ~85%, the company will send a letter, and at ~90%, an auction notice will be sent.
* MFI: The company has tightened its underwriting processes and it is giving MFI loans only to its customers who have a good credit track record.
* A corporate borrower default resulted in elevated credit costs; otherwise, credit costs would have remained at 0.5–0.6%.
Valuation and view
* MGFL reported a weak quarter, with sequentially flat gold loan growth. Additionally, asset quality deteriorated across all segments, with a more pronounced impact on the MFI portfolio due to customer overleveraging and macroeconomic stress. Asirvad Microfinance reported a net loss for the quarter, driven by elevated credit costs, while AUM declined sequentially. The RBI in Dec’24 revoked the ban on operations of Asirvad MFI. Resumption of MFI operations will support better collections.
* MGFL trades at 0.9x FY27E P/BV, and we believe that there could be a near-term impact on profitability and growth due to the stress in the MFI sector and overall weakness in macroeconomic activity. We reiterate our Neutral rating on the stock with a TP of INR215 (based on 1.1x Sep’26E consolidated BVPS).
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