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Axis Securities Report
Axis Securities values Manappuram Finance Ltd. at 1.6x FY28E (vs current valuations of 1.4x FY28E adjusted book value) to arrive at a target price of Rs 340/share, implying an upside of 11% from the current market price. The brokerage has revised its rating on the stock from Hold to Buy.
Outlook
With gold assets under management steering strong consolidated growth along with the gold rationalisation exercise now behind and gold yields bottoming out, margins are expected to stabilise, given no headwinds on CoF.
Thus, the brokerage revises its net interest income estimates upwards by 7-10% over FY27-28E, factoring net interest margins of 9.3% (+/-5 bps).
Credit cost moderation remains a key level in driving earnings growth for Manappuram. Asset quality metrics in the gold portfolio appear to be improving, and the structural changes undertaken in the non-gold portfolio are expected to yield results, driving credit costs lower.
Thus, management is confident of delivering RoE of 13-16% over the next couple of years. Driven by lower credit costs and stabilising margins, Axis Securities revises its earnings estimates upwards sharply by 22-24% over FY27- 28E, enabling Manappuram to deliver an RoA/RoE of 2.8-3%/13-15%.
Key Risks
- a slowdown in overall credit growth, which could potentially derail brokerage's earnings estimates.
- The scalability of new products and any asset quality concerns remains a key monitorable
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