VN Research & Consulting
 Like us on facebook  Follow us on twitter  Follow us on LinkedIn  IndiaNotes on Google Plus  IndiaNotes on Pinterest  IndiaNotes on Stumbleupon  Subscribe to our feeds


Stocks  A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
Go
Feedback
You are here : IndiaNotes >> Research & Analysis >> Companies >> Manappuram Finance Ltd. >> Research

Pick of the Week: Buy Manappuram Finance at CMP and add on declines to Rs107- Rs109 band

HDFC Sec | 08 Jan, 2018  | Follow Author | Add to my Favourites 
  • Rate this article
    (Average Rating 4.0 Based on 4 ratings)


Promoted by Shri. V.P. Nandakumar, Manappuram Finance Ltd (MFL) was incorporated in 1992 and today is the second largest gold loan company in India. The Manapurram Group was started in 1949 by Late Mr. V. C. Padmanabhan, with focus primarily on money lending activities. To reduce its concentration risk in gold loans, MFL over the last two years, has diversified into new business areas like microfinance, vehicle and housing finance, and SME lending. In February 2015, the company acquired Asirvad Microfinance Pvt. Ltd. with AUM a little short of Rs 300 cr which has grown 6-fold to ~Rs 1965 cr by the end of Q2FY18 after the subsidiary expanded operations to new geographies like Madhya Pradesh, Chhattisgarh, Punjab, Haryana, Chandigarh, and UP. Besides microfinance, the company has also diversified into commercial vehicle loans, housing finance and SME loans with promising results.


Investment Rationale


- Increasing share of non-gold loan business


- Gold loans market is expected to regain ground


- Asset quality deterioration peaked out; set to improve going forward


- Better storing mechanisms to reduce opex


- Online gold loans gaining traction


Concerns


- Fluctuation in gold prices


- Overdependence on Gold loans


- Regulatory risk


- Delay in scaling up non-gold business segments


- Increase in non-gold NPA


View and Valuation


MFL is pushing shorter tenure gold loans and simultaneously expanding its non-gold loan business. Regular auctioning of overdue accounts has helped to maintain asset quality in gold loans while the sharp deterioration in microfinance is also under control. With the effects of demonetization withering away and normal monsoons this year, the rural economy where MFL largely operates is likely to witness a strong pickup in activity. CARE in Aug-2017 revised the rating for MFL’s debentures from CARE AA- to CARE AA which would enable the company to lower its borrowing costs further.


The expected decline in security charges and growing share of online gold loans should aid in improving cost income ratio. Provisioning requirement is likely to be low going forward aiding better profitability and improvement in its return ratios.


We feel investors could buy the stock at the CMP and add on declines to Rs. 107-109 band (~1.85x FY20E ABV and 9.5x FY20E EPS) for sequential targets of Rs. 137.5 (~2.35x FY20E ABV and 12.1x FY20E EPS) and Rs. 158 (~2.7x FY20E ABV and 13.9x FY20E EPS) in 3-4 quarters. At CMP of Rs 120 the stock is trading at 2.05x FY20E ABV and 10.6x FY20E EPS.


  Read full report Click here to read the full report

logo
BSE
33.15 -1.20
(-3.49%)
NSE
33.15 -1.05
(-3.07%)
Read More
About HDFC Sec

HDFC Securities a trusted financial service provider promoted by HDFC Bank and JP Morgan Partners and their associates, is a leading stock broking company in the country, serving a diverse customer base of institutional and retail investors. HDFCsec.com provides investors a robust platform to trade in Equities in NSE and BSE , and derivatives in NSE. Our website will support you with the highest standards of service, convenience and hassle-free trading tools.


For more information please write in to [email protected]


Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.




Technical Calls

What are technical calls?

Other Articles


Have a question?