Manappuram Finance - Non-Gold Businesses On Strong Growth Trajectory: Motilal Oswal

Motilal Oswal Report

We attended Manappuram Finance Ltd.’s analyst meet hosted by its senior management team. Key takeaways from the meet:

• The management said that it is making rapid progress in transforming Manappuram Finance into a diversified non-banking financial company, with gold loans contributing over 50% of consolidated assets under management. It has guided for a 20% compound annual growth rate in consolidated AUM and a consolidated return on equity of 20% in the medium term.

• The company expects to return to gold AUM growth from Q4 FY23. We estimate Manappuram Finance’s gold AUM to grow by ~3.5% QoQ in Q4 FY23, driven by improving demand from small-ticket size borrowers.

• Manappuram Finance’s subsidiary, Asirvad MicroFinance, has witnessed a strong traction in loan disbursements. AUM of its MFI business has crossed ~Rs 100 billion, implying strong ~25% QoQ growth.

• For micro financiers, regulatory tailwinds include:

  1. the spread deregulation allowing for risk-based pricing (in the range of 24%), and 2. the recent Supreme Court order in Andhra Pradesh quashing the jurisdiction of state governments to govern the Reserve Bank of India-regulated MFIs.

• Other non-gold segments, such as micro, small and medium enterprise/personal loans, commercial vehicle loans and housing finance businesses, have witnessed strong growth on a low base.

  We expect the non-gold businesses (including MFI) to contribute ~45% to the AUM mix by March 2023 and ~50% by Mar-24.

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