Manappuram Finance shares rise post Q1 results; here are MGFL target prices

Shares of Manappuram Finance Ltd (MGFL) rebounded in Monday's trade after a weak opening, even as analysts said a strong gold loan momentum in the June quarter was tempered by yield compression, and asset quality deteriorated across segments. The stock rose 2.2 per cent to hit a high of Rs 264.25 on BSE. It was in fact up 5.21 per cent from the opening level. 

The MGFL management suggested that that the rise in gross NPA in vehicle finance was driven by higher delinquencies in the two-wheeler and farm equipment segment. As part of its corrective actions, Manappuram Finance exited the farm equipment segment and revamped its two-wheeler lending by implementing an automated underwriting system.

MOFSL noted that MGFL plans to gradually raise the share of gold loans to 75 per cent of its total portfolio, aided by the rollout of multiple attractive gold loan schemes and cut in gold loan yields. Growth in Housing, CV, and MSME loans will be pursued in a calibrated manner, with the secured book maintained at 90 per cent of total AUM. The MFI portfolio will be capped at 10 per cent of AUM, MOFSL said.

The management indicated that gold loan yields are expected to moderate to 18 per cent over the next 4-6 quarters, as the company plans a calibrated reduction in lending rates. "This strategic move is aimed at aligning its gold loan yields with that of peer gold loan NBFCs. The company also highlighted that the impact of lower gold loan yields will be offset by stronger loan growth, ensuring that the projected income from the gold loan portfolio remains unaffected during the course of this year," MOFSL said.

"In our view, in the near-to-medium term, the stock could face an overhang due to 3 reasons: (1) AUM decline and asset quality stress in Asirvad Microfinance. (2) Growth of standalone entity being affected due to RBI’s ongoing restrictions on opening new branches. (3) NIMs of standalone business are likely to remain under pressure due to yields of core gold loan business trending downwards. We thus maintain a ‘HOLD’ rating on MGFL," Nirmal Bang said.

The domestic brokerage valued Manappuram Finance's standalone gold loan business at 1.5 timed March 2027E adjusted book value and said its price multiple is 7.1 per cent higher than the past 5-year average P/ABV multiple of 1.4 times. Nirmal Bang suggested a target of Rs 270 for Manappuram Finance against Rs 272 earlier. 

MOFSL suggested a target of Rs 280 on the stock.