Shares of Manappuram Finance Ltd have experienced a significant rally, climbing 18 percent over the past month. Despite this strong performance, MOFSL, a domestic brokerage, has reiterated its 'Neutral' rating on the stock, suggesting limited further upside potential based on its latest target price.
Q4 Performance Exceeds Expectations
MOFSL's analysis of Manappuram Finance's March quarter results highlighted a consolidated profit after tax (PAT) that exceeded their estimates by a substantial 58 percent. While net interest income (NII) saw a 3 percent decline, which was in line with expectations, operating expenses dropped by 6 percent, coming in 11 percent lower than MOFSL's projections.
Gold Loan Segment Strong, Non-Gold Portfolio Improves
The company demonstrated robust performance in its gold loan segment. This growth was attributed to rising gold prices, consistent demand, and a gradual shift by customers towards formalized financing options. However, growth in the non-gold portfolio, including vehicle finance (VF) and Asirvad Microfinance (MFI) segments, remained subdued due to ongoing asset quality concerns. MOFSL noted early signs of improvement in both the VF and MFI segments.
Outlook and Target Price
Following the Q4 results, MOFSL estimates Manappuram Finance's stock trades at 1.6 times its estimated FY27 book value. The brokerage projects a compounded annual growth of 25 percent in gold loans, 23 percent in consolidated assets, and a significant 66 percent in consolidated PAT over FY26-28. Return on Asset (RoA) and Return on Equity (RoE) are estimated at 3 percent and 14 percent, respectively, by FY28.
MOFSL has set a target price of Rs 315 for Manappuram Finance. Considering the stock closed at Rs 307.40 on Monday, this implies less than a 2 percent upside potential, reinforcing their 'Neutral' stance.
Strategic Diversification and Asset Quality
Manappuram Finance is actively pursuing portfolio diversification through new offerings in consumption and income-generation gold loans, as well as affordable housing. The company is also adopting a calibrated approach in its non-gold segments (MFI and VF), aiming for healthy Asset Under Management (AUM) growth in FY27 with a stable operating profile.
Asset quality across MFI and VF is expected to improve. This is supported by tighter underwriting standards, stronger credit controls, and enhanced recovery efforts. Specifically, in MFI, a new book (59 percent of MFI loans) is replacing the legacy pool, driving overall portfolio improvement. The legacy book is projected to reduce to 10 percent by Q3FY27. For vehicle finance, focused collection actions and digital interventions have already led to improved bounce recoveries. These operational enhancements and portfolio rebalancing are anticipated to moderate credit costs and gradually enhance asset quality.