Manappuram Finance Gets Multiple Downgrades As RBI Bars Unit's Lending Operations

Manappuram Finance Ltd. received downgrades from multiple top brokerages as the Reserve Bank of India's restriction on its subsidiary could hurt earnings with at least six months of restrictions.

The non-banking financial company was downgraded by Morgan Stanley, JPMorgan and Jefferies a day after the banking regulator barred four NBFCs from sanctioning and disbursing loans from Oct. 21. This was done as the regulator found material supervisory concerns in relation to high lending rates.

Jefferies downgraded Manappuram Finance to 'hold' with a target price of Rs 167 apiece, implying a downside of 5.8% from the previous close.

RBI's restrictions on subsidiary Asirvad Microfinance should hurt earnings, as it accounts for 27% of consolidated assets under management, Jefferies said in a note on Oct. 17.

The parent may have to infuse capital if the subsidiary’s net worth is eroded, it said, adding that the remedial measures and removal of restrictions could take six months.

Morgan Stanley downgraded the NBFC to 'equal weight' and revised target price to Rs 170 versus Rs 262 apiece earlier. This implies a downside of 4% from the previous close.

RBI embargo is likely to hurt profit materially as longer and short-tenured loan book could shrink rapidly, the brokerage said. Credit costs are already elevated and funding costs could rise, it said.

Morgan Stanley cut its consolidated earnings forecasts by 20% for fiscal 2025 and 30% across fiscal 2026-27.

The RBI has asked Asirvad Micro Finance, Navi Finserv, Arohan Financial Services, and DMI Finance to 'cease and desist' sanction and disbursal of loans.

The move came as the central bank over the past few months has sensitised lenders on the need to use their regulatory freedom responsibly and ensure fair, reasonable, and transparent pricing, especially for small-value loans.

JPMorgan also downgraded the lender to 'underweight' but refrained from giving any target price.

The regulator's action is likely to impact funding costs, and the capital infusion required will be a key risk, it said. The risk of asset impairment is higher in this book and credit rating is likely to get impacted, it said.

Twelve out of 16 analysts tracking the company have a 'buy' rating on the stock, four suggest a 'hold' and two have a 'sell', according to Bloomberg data. The average of 12-month analysts' price targets implies a potential upside of 23.7%.