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Manappuram Finance - Q4FY22 Result Update - Intense Competition Put Pressure on Yields - BUY

Posted On: 2022-06-27 22:18:18 (Time Zone: IST)

Mr. Akshay Ashok - Research Analyst at Prabhudas Lilladher Pvt. Ltd.

Quick Pointers:

- Gold Loan yield in Q4'22 down to 18.8% from 20.3% in Q3'22

MGFL has been the victim of intense competition (organized/non-organized) and resultantly Q4FY22 saw shrinkage in yields (150bps QoQ). Both tonnage and gold AUM de-grew 3% and 1.4% QoQ, although they grew by 4% and 5.7% YoY. Asset quality also deteriorated as standalone GNPA and NNPA rose to 3% and 2.7% from 1.4%/1% in Q3'22. Management clarified that an accounting change to align with IRAC norms resulted in higher GNPA and should soon normalize in coming quarters.

Going forward, Co. expects branch productivity in-line with 20% targeted loan growth to compensate likely pressures on spreads. Intense competition in gold loan business and lack of demand from weaker section of society will continue to put pressure on yields. From highs of 23% gold loan yield, 18-19% can be the new normal. We maintain AUM growth estimates at 15-20%, lower the yields with NIMs declining to 13.8% from ~16% in FY21 and maintain GNPA forecasts at 2.8%/2.4% over FY23 to FY24. We reduce NII estimates by 8%/12% and PAT estimates by 17%/21% for FY23/FY24 factoring in lower yields in gold loan business. Reiterate 'BUY' rating as valuation is attractive with price target reduced to Rs126 from Rs151, valuing the consolidated book at 1.1x PABV Sep'23E.

Flattish loan growth, lower opex aid PAT: AUMs at Rs302bn reported growth of 11.2%YoY and de-growth of 0.5%QoQ as gold loans de-grew 1.4% QoQ. MFI AUMs de-grew 3.0%, VF AUMs grew 8.8% and HLs grew by 3.5%QoQ. MGFL's both gold tonnage as well as gold loan sequentially de-grew by 2.9% and 1.4% on QoQ basis. PAT was affected due to shifting of high yield to lower yielding gold loans and higher provisions which were up by 44.5% on a QoQ basis. Opex came down by 6.1% on a QoQ basis which salvaged PAT. Going forward company expects to clock 20% growth which is a positive.

Asset quality negative surprise: NPA at 3.0% for standalone business (gold) up from 1.4% in Q3'22. MFI business also saw a rise in GNPA to 3.5% vs 2.8% NPA in Q3FY22. For housing, NPAs reduced to 5.9% vs 12.3% (Q3FY22) and vehicle finance NPAs were at 6.7% vs 5.6% last quarter. Asset quality should improve going forward, we maintain GNPA forecasts at 2.8-2.4% over FY23 to FY24. Management clarified that an accounting change regarding recording of full collections as on date of reporting NPA's as per IRAC norms resulted in higher GNPA this quarter and should normalize, going forward.

Shares of Manappuram Finance Limited was last trading in BSE at Rs. 88.90 as compared to the previous close of Rs. 87.60. The total number of shares traded during the day was 272711 in over 2014 trades.

The stock hit an intraday high of Rs. 89.25 and intraday low of 87.55. The net turnover during the day was Rs. 24138794.00.

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