Sell Manappuram Finance Ltd For Target Rs. 152 By Geojit Financial Services Ltd
Ongoing Weak Performance to Persist
Manappuram Finance Ltd. (MGFL) is one of the leading gold loan NBFCs in India. MGFL has also diversified into other business segments like housing loan, vehicle loan and microfinance, with a branch network size of around 5,000 spread across the country.
* MGFL's total AUM grew 17% YoY to Rs. 45,716cr, with gold loan AUM rising to Rs. 24,365cr (+17% YoY) in Q2 FY25.
* Asirvad, MGFL's microfinance subsidiary, shows 11% YoY AUM increase to Rs. 12,149cr (including Rs.1,179cr Gold AUM), making up ~25% of the consolidated AUM.
* As of October 21, 2024, the RBI has halted Asirvad's operations, allowing only servicing of existing customers and collections.
* In addition to microfinance, Asirvad operates 500 plus gold loan branches, which will be affected by this ban.
* MGFL reported a Net Interest Income (NII) of Rs. 1,635cr, reflecting a 20% YoY growth. However, the PAT growth was muted at Rs. 572cr (+2% YoY), primarily due to a 117% increase in credit costs.
Outlook & Valuation
The RBI's regulation on Asirvad, MGFL's largest subsidiary, which accounts for ~25% of the consolidated AUM, will impact the company's growth. We expect muted consolidated AUM growth, with single-digit increases and with a significant ~20% decline in the MFI segment. Growing asset quality concerns and higher credit costs, due to the company's increased focus on non-gold AUM, are also worrisome. Given these medium-term pressures and the ongoing ban on Asirvad, we are downgrading our rating to 'SELL' with a target price of Rs.152, based on a 0.9x adjusted BVPS of
Key concall highlights
* Asirvad submitted a compliance plan to the RBI on October 29, 2024, and management is optimistic about lifting the disbursement ban soon.
* The profitability of the MFI segment has been impacted by reduced collections in certain areas due to regional stress and natural disasters, leading to higher credit costs.
* To address RBI's identified deficiencies, Asirvad has reduced its interest rates to industry-leading levels, currently around 24%.
* Management plans to refocus on the core gold loan business and other secured lending activities, mainly due to the pressure from higher credit costs.
* Following the RBI's circular on September 30, 2024, regarding gold loan lending practices, the company is reviewing its policies, identifying gaps, and implementing corrective measures to strengthen its core gold business. Compliance with all parameters will be ensured before the deadline.
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