Manappuram Finance’s (MGFL) PAT of R6,970 crore came in below our estimate of R8,400 crore owing to slower traction at NII level, a function of dip in NIMs. However, the quarter was characterised by healthy growth momentum with AUM (up 5% q-o-q) benefitting from over 20% q-o-q disbursement surge and curtailed auctions (R224 crore versus R970 crore in 9mFY15). Post sharp decline in Q3FY15, GNPLs normalised to 1.2% (1.0% in Q3FY15). In light of strategic diversification to CV, housing and micro finance loans and valuation of 0.9x FY17e P/BV, we maintain buy with target price of R45.
Post the Q3FY15 dip in asset quality (GNPLs had dipped to 1% from 2% q-o-q), GNPLs normalised to 1.2%.
Incrementally, following implementation of 75% gold loan LTV, concerns on asset quality and auction under recoveries (that had hurt profitability) are fading, given improved processes and focus on recoveries and collections.
Negatives are now gradually waning for MGFL with regulatory hurdles being settled and RBI also acknowledging systemic importance of gold loan companies. We expect growth momentum to gather pace and credit cost to remain benign. MGFL is also focused on diversifying its business model with MFI, CV and housing loans estimated to constitute more than 25% in three years.
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