Manappuram Finance Q2 Review: Analysts See Headroom For Growth After Profit Beat

Shares of Manappuram Finance Ltd. surged over 8% on Wednesday after its second-quarter profit beat analysts' estimates and as analysts sees sufficient headroom for growth in both gold loan and microfinance businesses.

The Kerala-based gold financier's standalone net profit increased 20.6% year-on-year to Rs 420 crore in the quarter ended September, according to a regulatory filing issued on Monday. Analysts polled by Bloomberg estimated a standalone net profit of Rs 389.6 crore. Sequentially, the profit was up 10.2%.

Morgan Stanley believes the stock is at an inflection point, with consecutive quarters of quarter-on-quarter growth in the gold loan book and non-gold business (47% of AUM) delivering strong growth.

"We expect ROE to improve to 19.7% in FY25 from 16.7% in FY23", the research firm said in Nov. 14 note.

• Morgan Stanley maintained an 'overweight' rating on the stock and raised the target price to Rs 200, implying an upside retune potential of 43%.

• "We make marginal upgrades to our NII and other income estimates based on the second quarter of FY24 performance".

• The research firm's FY24 credit cost estimate rises as it factors in the higher 2QFY24 provision in Asirvad MFI.

• The company's consolidated profit beat estimates, driven by non-interest income. Higher than expected assignment income at Asirvad MFI, assignment of non-gold loans in the standalone business, and higher fee income

• "We also build in lower assignment income in subsidiary Asirvad MFI vs. H1FY24 performance, given the episodic nature of loan assignment. These could be potential upside risks to total income.

• Motilal Oswal reiterated a 'buy' with a target price of Rs 180, implying an upside of 18.42%.

• Guided by gold loan growth of 8–10% year-on-year in FY24, it will continue to maintain pricing discipline.

• Growth momentum in MFI will remain strong; it is sufficiently capitalised for growth in FY24.

• To mitigate the cyclicality in the gold loan segment, the company has been actively diversifying into non-gold segments, with the share of non-gold products in the company's AUM mix at 47% (vs. 37% in 2QFY23).

• "We believe MGFL should tread carefully in the non-gold segments, as it has yet to exhibit any clear ‘right to win’ in these segments."

• IDBI Capital largely maintained the estimates for FY25E and maintained a 'buy' rating with a target price of Rs 175.

• Competition intensity impacted AUM growth as well as margins.

• "However, H1FY24 reflected an improvement in margins. We believe that the company has the potential to report RoA above 3.5%".

• IDBI Capital noted that the management believes that the credit needs in gold loans as well as microfinance businesses are large; hence, there is sufficient headroom for growth in these segments despite the competition from banks and NBFCs.

Shares of the company rose as much as 9.98% to Rs. 154.35 a piece. It is trading 8.07% higher at Rs 151.70 apiece as of 11:36 p.m. This compares to a 0.91% advance in the NSE Nifty 50 Index.

It has risen 30.43% on a year-to-date basis. Total traded volume so far in the day stood at 12 times its 30-day average. The relative strength index was at 66 as of 11:30 a.m.

Out of 20 analysts tracking the company, 16 maintain a 'buy' rating, one recommends a 'hold', and three suggest 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 13.8%.