Motilal Oswal's research report on Manappuram Finance
MGFL reported a consolidated PAT (11% miss) of INR3.7b, down 9% YoY and 15% QoQ. NII declined by 4% QoQ to INR9.9b (in line), driven by a compression in spreads. PPOP (7% miss) declined by 8% YoY and 15% QoQ to INR6b. Credit costs remained elevated in the MFI subsidiary due to the impact of the second COVID wave. We expect credit costs to remain elevated in 3Q and moderate from 4QFY22 onwards. While MGFL demonstrated greater sequential Gold loan growth (~13% QoQ) by effectively winning over higher ticket Gold loan customers, this has come at the cost of compression in spreads and large incentives paid to employees. MGFL has embarked on a change in its business model and has traded-off spreads/margin for Gold loan growth. There will be a structural compression in spread/margin in the subsequent quarters, but MGFL is betting on mitigants like improvement in its cost ratios and leverage, driven by a strong growth in AUM. As a franchise, MGFL has made considerable progress in its appraisal, security infrastructure, and other processes over the last three years. It can deliver a healthy consolidated AUM CAGR of ~17% over FY21-24E. We estimate a consolidated RoA/RoE of 5.9%/22% over the medium term and maintain our BUY rating with a TP of INR230/share (1.7x Sep'23E BVPS).
Outlook
MGFL trades at 1.6x FY23E P/BV. The risk-to-reward is favorable, considering that it can still deliver consolidated RoE of ~22% over FY23-24E, even under the new business model. We maintain our Buy rating, with TP of INR230/share (1.7x Sep’23E BVPS).
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