Buy This NBFC Stock Focused On Gold For A Target Price Of Rs 130: Motilal Oswal

CMP, 52 Week Low/High, Market Cap

The company has a market cap of Rs 8,003 crore. Currently, the stocks are trading near 52 week low at 94.90 after closing on 19th May 2022. Today, the stocks witness a decent fall in price. The previous closing price of the stock was Rs 104.55 per share. The stocks touched 52 week low of Rs 91.85 on 19th May 2022, whereas, the 52 weeks high of 224.50 on 10 November 2021.

 

Gold and company's AUM fell sequentially; credit costs elevated in the company

Over the last three quarters, Manappuram Finance Ltd traded off margin and spreads for Gold loan growth. This naturally dented profitability, with FY22 PAT declining by 23% YoY. The management said it would prioritize profitability over the relentless pursuit of loan growth in FY23. "Gold AUM fell ~1% QoQ to INR 202b and Gold tonnage declined by 2% to 68t. LTV declined by 300bp QoQ to 62%, while the average ticket size of Gold loans increased to ~INR57k (v/s ~INR45k YoY and ~INR53k QoQ). Manappuram Finance Ltd. AUM declined by 3% QoQ to INR67b. The company seems to have taken higher write-offs in 4QFY22, which led to credit costs of 7.2% (v/s 4.7% in 3QFY22). MFI GNPAsrose 70bp QoQ to 3.5%, including the RBI NPA circular," Motilal Oswal Securities has said.

Compression in spreads and margin is driven by higher ticket sizes and aggressive competition

NII fell 2% QoQ, driven by sequential moderation of ~150bp in Gold loan yields to 18.8%. Consolidated NIM fell 50bp QoQ to 12.2%. Manappuram Finance Ltd. has exhausted both the levers of higher advertising and promotion expenses and spread compression to turbocharge its Gold loan growth. "We expect Gold loan growth of ~9% in FY23 and 14%/10% CAGR in consolidated/Gold loan AUM over FY22-24," the brokerage has said. 

Brokerage comments and views on valuation, target price

Commenting on the valuation, the brokerage said, "We have cut our FY23/FY24 EPS estimate by 20%/30% to factor in a further compression in spreads and lower loan growth. The demand environment in Gold loans is not very buoyant. The management said it did not wish to pursue growth at the cost of a further compression in spreads. We model in consolidated AUM/PAT CAGR of ~10%/~6% over FY22-24E. The risk-reward ratio for MGFL is still favourable at 0.8x FY24E P/BV for a consolidated RoA/RoE of 3.8%/16%. We maintain our Buy rating with a TP of INR130 per share (based on 1x FY24E consolidated BVPS)."

Manappuram Finance Ltd

Manappuram Finance Ltd. is a gold loan Non-banking Finance Company (NBFC) in India with a market cap of Rs 8,003 crore. The company has a presence across India's major cities and locations. The company is involved in various financial activities which include gold loans, forex and money transfer, vehicle loan, SME finance and a few other. The company has 4 subsidiaries, Manappuram Home Finance Ltd., Manappuram Insurance Brokers Ltd., Asirvad Microfinance Ltd., and Manappuram Comptech and Consultants Ltd.With assets under management (AUM) of Rs. 272.24 billion and a workforce of more than 30,000, the company has 4637 (including branches of subsidiary companies) branches across the country.