Manappuram Finance zooms 10% on Q2 earnings beat, another 43% upside likely — key drivers

According to domestic brokerage Motilal Oswal, consolidated net interest margin (NIM) expanded 15 basis points quarter-on-quarter to 15%, aided by expansion in yields and sequentially stable borrowing costs. The brokerage expects gold loan yields to stabilise now.

To mitigate the cyclicality in the gold loan segment, Manappuram Finance has been actively diversifying into non-gold segments, with the share of non-gold products in the firm's AUM mix at 47% as against 37% a year ago. “We believe Manappuram Finance should tread carefully in the non-gold segments as it is yet to exhibit any clear ‘right to win’ in these segments,” Motilal said.

Analysts at global brokerage firms have also maintained their bullish stance on the Manappuram Finance stock. Foreign brokerage Morgan Stanley has retained its 'Overweight' call on the counter and raised its target price to ₹200 from ₹183 per share earlier.

The brokerage said that Manappuram Finance beat the profit estimate by 10% on expanding gold loan yields, higher assignment and insurance broking fees. For the September quarter, gold loan yields improved by 50 basis points to 22.1% as against 21.6% in the previous June quarter. However, the credit costs were disappointing.

Further, Morgan Stanley sees upside risks to earnings, and more to valuation multiples.

BofA Securities has a 'Buy' rating and a target of ₹182 on the stock. In its report, it said the September quarter earnings posed as a surprise on strong fee income and lower opex. The primary focus will be on profitability and portfolio diversification in FY24, it said.

BofA Sec added that it believes the price-to-book (P/B) undervalues Manappuram Finance’s strong non-gold business growth and the improving MFI yield.

The management has guided gold loan growth of 8-10% YoY in FY24 and expects to maintain pricing discipline in gold loans despite high competition. Additionally, the management has said that it will not pursue loan growth at the cost of compression in spreads, which will continue to be a driver for higher profitability, according to Motilal.

The brokerage believes that there is a scope for a re-rating in valuation multiples for a franchise that can deliver a sustainable RoE (return on equity) of 20%. "Risk-reward for MGFL is favourable and we maintain our BUY rating with a target price of ₹180," it said.