Manappuram Q2 Review - Earnings Beat Driven By Higher Other Income; Gold Loan Growth Muted: Motilal Oswal

Motilal Oswal Report

Manappuram Finance Ltd.’s consolidated profit after tax grew ~37% YoY to ~Rs 5.6 billion (8% beat) in Q2 FY24, aided by high other income. Net interest income grew 25% YoY to ~Rs 13.5 billion and pre-provision operating profit rose ~37% YoY to ~Rs 8.7 billion (10% beat). Annualised credit cost for the quarter was stable QoQ at 1.3% (versus 1.0% in Q2 FY23).

Gold assets under management increased by ~1% QoQ and 8% YoY to ~Rs 208 billion. Gold tonnage was largely stable QoQ at 59.4 tonne.

Gold loan yields in Q2 FY24 improved by 50 bp to ~22.1% (versus 21.6% in Q1 FY24). Consolidated net interest margin expanded ~15 bp QoQ to ~15%, aided by expansion in yields and sequentially stable borrowing costs. We expect 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 company's AUM mix at 47% (versus 37% in Q2 FY23).

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. 

We raise our FY24E/FY25E EPS by ~5%/6% to factor in stronger growth in the non-gold segments and higher other income. We estimate a 10%/20% AUM compound annual growth rate in gold/consolidated book over FY23-26.

We model a consolidated PAT CAGR of ~27% over the same period to arrive at consolidated return on asset/return on equity of ~5.0%/20% in FY26. Reiterate 'Buy' with a target price of Rs 180 (based on 1.0 times Sep-25E consolidated book value per share).

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