Stock of the Day: Manappuram Finance

In the dynamic world of finance, staying abreast of market movements is crucial. Today, we delve into the intriguing journey of Manappuram Finance, exploring its recent stock performance, the driving forces behind its surge, and expert analyses shaping the narrative.

Why it Surged?

Manappuram Finance witnessed a significant uptick in its stock price, surging from ₹140.6 to ₹161, marking a 7.01% increase. This rise follows the NBFC's impressive second-quarter earnings report, beating street estimates and posting a remarkable 37% YoY growth in profit.

What are the Drivers Behind Manappuram Finance's Rally?

Strong Financial Performance:

    1. Net interest income rose by 25.6% YoY to ₹1,468 crore.
    2. Consolidated AUM climbed 27% to ₹38,951.7 crore.
    3. Gold AUM expanded by 8% YoY.

Diversification Strategy:

Analyst Recommendations:

    1. MS retains 'Overweight' call, raising the target price to ₹200.
    2. Veterans analysts rates it a 'Buy' with a target of ₹182.

Insights:

    1. NIM expanded 15 basis points quarter-on-quarter to 15%, aided by yield expansion.
    2. Cautioned on non-gold segments, emphasizing the need for a clear 'right to win.'
    3. Upbeat on expanding gold loan yields and higher fees.
    4. Earnings surprised on strong fee income and lower opex.
    5. Emphasizes profitability and portfolio diversification in FY24.

Management Guidance:

Gold Loan Growth:

    1. Management guides 8-10% YoY growth in FY24.
    2. Commitment to maintaining pricing discipline in gold loans despite high competition.

Profitability Focus:

    1. Pursuing sustainable RoE of 20%.
    2. Will not compromise on spreads for loan growth.

New Key Drivers:

From being a corporation that only lent out gold, Manappuram has expanded into a more diverse financial industry. Gold lending accounted for 58% of AUM in Q3FY23, with microfinance, house loan financing, CV finance, and gold lending making up the remaining product categories. 

At a cost of 110 crore, Manappuram purchased Asirvad in 2015 to enter the microfinance industry. As of Q3FY23, Ashirvad has an AUM of 8,654Cr. In 2015, Manappuram became the pioneer firm to offer gold loans online.

As of Q3FY23, internet loans accounted for 47% of all gold loans. The Housing Finance Division caters to 89% self-employed consumers with mid-to-low incomes. As of FY22, the loan AUM was 845 Cr. (Q3FY23) Gross NPA was 5.4%.

(Q3FY23) Gross NPA was 5.4%. From 374 Cr in FY18 to 845 Cr in FY22, the loan AUM increased at a 23% compound annual growth rate.

The vehicle loans segment had rapid growth, rising from 625 Cr in FY17 to 1643 Cr in FY22 (27% CAGR). CV finance accounts for 62% of outstanding loans, followed by two-wheeler loans (18%) and passenger car loans (20%). Q3FY23 gross NPA was 3.1%.

Conclusion:

Manappuram Finance's recent surge is not merely a market anomaly; it's a testament to strategic moves and strong financials. Analysts are optimistic, foreseeing potential upside risks and favorable risk-reward scenarios. The company's commitment to diversification and maintaining profitability adds a layer of resilience. Investors keen on dynamic market opportunities should keep a close eye on Manappuram Finance in the coming days and weeks.