Buy This Small-Cap NBFC Stock For Target Price Of Rs 122: Axis Direct

Brokerage Firm Axis Direct recent report on Manappuram Finance Limited gets a buy call for a target price of Rs 122 apiece. The brokerage sees potential gains of 18% considering the estimated target price and the current market price of the stocks.

Manappuram Finance is amongst the leading gold loan NBFCs in India and is well-diversified into other business segments comprising Housing Loan, Vehicle Loan, and Microfinance with a branch network of ~5,000 spread across the country and an employee strength of over 40000. Manappuram Finance is a small cap NBFC having a market capitalization of Rs Rs 8,768.65 crore.

Stock Outlook

The current market price of the stock is Rs 101.95 apiece, opened at Rs 102.30 apiece, trading 1.59% below the previous close.

The stock's 52 week low is Rs 81.50 and the 52 week high is Rs 224.50. TTM PE ratio is 7.35. TTM EPS is 13.87. PB ratio is 1.04. The dividend yield is 2.94% and the face value is Rs 2. ROE is 15.87%.

 

Returns on Investments

Over the week, the shares of the company declined 6.2%. Whereas, in the past 1 and 3 months, the shares surged around 9.63% and 9.51%, respectively. In the past 1 and 3 years, the stocks gave a negative return of 37.4% and 15.36%, respectively. In the past 5 years, the stocks gave a positive return of 22.17%.

Improving yields on Gold Loan Book with Expected Growth of 10% in FY23

The gold loan book yields have remained compressed for the last few quarters due to enhanced competitive intensity (led by teaser loans) and a relatively higher proportion of higher ticket size loan (~33% of the loan book constituted with a loan ticket size of Rs 2 Lc in Q4FY22). However, early signs of yield improvement are visible and is encouraging. In Q1FY23, NIM improved sequentially as reported net yields in the gold loan book improved to ~19.4% from ~18.8% (and improved further in Jul'22 to 21.7%). This was largely driven by the rationalization of low-yielding schemes. Furthermore, the management has guided to maintain yields at ~21% in the near term which would improve with the revival in the demand for small ticket size loans from the bottom of the pyramid. Additionally, the growth guidance for the Gold Loan book remains intact at 10% for FY23. We believe the growth in the gold loan book should come back with increased participation from high-yielding low-ticket size loans and a good monsoon season.

MFI Segment to drive growth with higher margins and stable asset quality

The company has been observing steady improvement in collection with collection efficiencies (CE) improving to 102% in Q1FY23 vs 99% QoQ. The large part of the stressed pool in the MFI is now provided for with a significant jump in the Stage-3 pool in Q1FY23. The management guided for significant improvement in the credit cost on MFI from H2FY23 aiding ROA improvement to ~1.5% for FY23 in the MFI book. GNPA of new book in MFI (disbursals post May'21) is less than 1%. Additionally, NIMs on incremental MFI business is ~15% supported by the new RBI guideline on spread cap removal. We believe with ~22% of the AUM, the guided growth of 20% with significant improvement in NIMs and credit cost, MFI segment should augur well for the growth aspirations of the company.

Strong Balance Sheet to support growth

Manappuram Finance s remains well capitalized with CRAR at 31.5% in Q1FY23 with only 2.7x leverage, creating plenty of room to support strong growth momentum. The company enjoys a strong ALM position with the proportion of CPs (standalone basis), which is reported to be only 1% of total liabilities, providing a buffer to mitigate the risk of a rising rate cycle in the near to mid-term. A strong balance sheet and favourable liability mix profile has helped MGFL to control the impact of higher borrowing cost with a slight 10bps sequential increase in the consolidated cost of borrowings in Q1FY23.

Buy For a Target Price of Rs 122

The management expects to maintain yields at ~21% in the near future. It also expects yields on Gold loans to improve further with demand for the small ticket size loan from the bottom of the pyramid customers going up. Its balance sheet liquidity remains comfortable with no funding challenges and only 2.7 times leverage. The NIMs on incremental MFI business has gone up to 15% post the new RBI guideline on removal on the cap on spreads which should augur well for overall better-blended yield realization. With Manappuram Finance trading below its 5-Yr average of ~1.1x P/BV, we believe the underperformance in the past few quarters is priced-in. Against this backdrop, we should see an upside from here on with the company's overall performance improving in the coming quarters. "We recommend a BUY rating on the stock with a target price of Rs 122/share, implying an upside of 10% from the CMP," the brokerage said.

 

Disclaimer

The stock has been picked from the brokerage report of Axis Direct. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.