ICICI Securities Suggests Buy Two Small Cap & Large Cap Gold Loan Sector Stocks For Robust Gains

Manappuram Finance Limited

Manappuram Finance is one of India's leading gold loan Non-Banking Finance Companies (NBFCs). It is a small-cap company having a market capitalisation of Rs 9,661.60 crore. 

The brokerage suggests "buy" the stock with a target price of Rs 147 per share. If you buy the stock today at the current market price, you can get a 30% return. 

The current market price (CMP) of the Manappuram stock is Rs 113.75 apiece on NSE, trading 0.49% up from its previous close. The stock recorded its 52 week high on 13 December 2021 at Rs 179.45 and it recorded its 52-week low on 20 June 2022 at Rs 81.50, respectively. 

In the past 1 week, the stock surged, giving 2.15% positive return. Whereas in the past 1 and 3 months, it gave 8.9% and 8.54% positive returns. It gave 32.44% negative returns in a year and 28.09% it gave negative returns in the past 3 years,  respectively. In 5 years, it gave 6.55% positive returns. 

According to the brokerage, Manappuram largely did not offer teaser rates in FY15, yet its gold AUM growth was better than Muthoot's. Manappuram had designed few lower-rated schemes (12%, 14%) to compete with banks; however, the same was offered to low-risk / lowLTV customers only. Also, these schemes were not its major marketed product and their contribution to overall AUM was very low, hence impact on yields too was negligible as per management. Yet Manappuram's gold AUM grew 13% / 9% in FY15 / FY16, higher than the 8% / 4% for Muthoot. 

Muthoot Finance Limited

Muthoot Finance is India's largest gold financing company according to the loan portfolio size of the company. The company offers personal and commercial loans backed by gold jewellery or gold loans. The company predominately operates in Southern India. Muthoot Finance is a large-cap NBFC-gold loan company with a market capitalisation of Rs 43,342.80 crore.

The brokerage has estimated Rs 1,279 target price with a buy call to the stock of Muthoot Finance. According to the brokerage, the stock with the given target price is likely to give gains of up to 19% if it is purchased today at the current market price.
The current market price (CMP) of the Muthoot Finance stock is Rs 1,081.60 per share on NSE, trading 0.33% up from its previous close. The stock recorded its 52 week high level on 5 January 2022 at Rs 1,559.95 and 52 week low level on 26 September 2022 at Rs 950.20, respectively. 
The shares surged 1.97% in the past 1 week, and 3.11% in the past 1 month, respectively. It gave 3.13% positive return in 3 months. Over the past 1 year, the stock fell by 25.02%, however, it gave massive 56.72% returns in the past 3 years. In the past 5 years, it gave a multibagger 137.75% positive return.

According to the brokerage, Muthoot failed to fully achieve its purpose. While teaser rate offering helped Muthoot grow its gold AUM, the same was not sustainable (QoQ gold AUM growth was -(1)% / 2% / 1% / 6% / 4% / 2% / 0% in Q1FY15 / Q2FY15 / Q3FY15 / Q4FY15 / Q1FY16 / Q2FY16 / Q3FY16). Standalone yields understandably declined from 20.6% in Q4FY14 to 18.0% in Q3FY16 leading to RoE decline to 14% in Q3FY16 from 17.3% in Q4FY14. Post Q3FY16, management realised the need to increase rates to maintain profitability, hence its yield/RoE increased to 23.2%/19.2% in Q4FY16. Manappuram's standalone yields during the same period (Q1FY15 to Q3FY16) were largely stable at 23.3% except for Q4FY15, Q1FY16, and Q2FY16 when it dropped to 21.6% mainly due to high auctions, not teaser rates. 

Disclaimer

The stocks have been picked from the brokerage report of ICICI Securities. 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 making any investment decision.