Accumulate Manappuram Finance (MGFL IN); target of Rs 196: Prabhudas Lilladher

Prabhudas Lilladher's research report on Manappuram Finance (MGFL IN)

Healthy gold loan traction (30%YoY) and sustenance of yields (~23.5% since 7 quarters) coupled with lower provisions (26% QoQ decline) aided Q2FY21 earnings. Subsequently, we tweak our loan estimates to 17.7% (earlier 12%) translating into improved NII and 9% uptick in EPS estimates of FY21. While gold loan business maintained superior growth (30%YoY/11%QoQ) and asset quality (1.1% NPA), non-gold performance is still not reassuring. We foresee non-gold (27% of AUMs) business performance to rub-off on overall earnings ahead as (a) write-offs at Rs380mn continues to inch higher QoQ (b) deceleration of PPoP as % of AUM for MFI business (19% of AUMs) since two quarters (156bps dip over Q4FY20-Q2FY21) (c) continued elevated NPAs for HFC (5.7% in Q2FY21 vs 5.1% in Q1FY21 with old book NPA at elevated levels of 16%) and VEF (NPA at 11% stood higher than 10% previous quarter) business. Said that, collection efficiency at 82%/81%/92% for MFI/VEF/HFC is on recovery mode. With lack of clarity on non-gold asset quality looming large we maintain high order NPAs at 1.9% and credit costs at 1.2% fro consolidated book of FY21.

Outlook

We, therefore, maintain our cautious stance and reiterate Accumulate rating on the stock valuing the consolidated business at 2.0x PBV Sep’22 estimates implying price target of Rs196.

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