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Systematix Research Report
Manappuram Finance Ltd.'s Q4 FY23 operating performance was below expectation as increase in tenure of gold loan portfolio led to lower penal interest income, impacting yields in that portfolio.
On all other parameters like assets under management growth and asset quality, the performance was better than expected. Growth in Gold portfolio bounced back, aided by higher gold price. Non-gold portfolio also grew by a strong 55% YoY led by microfinance, commercial vehicle, home loan, micro, small and medium enterprise and others.
Micro finance institution business (26% of the AUM) contributed meaningfully with AUM growth at +40% YoY (+15% QoQ), improved asset quality (2.7% versus. 6.7% in Q3 FY23) and improved profitability (Rs 993 million versus 706 million in Q2 FY23).
We estimate a 22% compound annual growth rate in Manappuram Finance's AUM to deliver a 25% CAGR in earnings over FY23-FY25E.
With optimal product mix along with improving asset quality and expansion in the MFI business, Manappuram Finance should be able to improve their return on asset/return on equity to 4.3%/19.3% by FY25E from 4.1%/16.6% in FY23, respectively.
On the recent Enforcement Directorate raid, the management commented that they have got the stay order on ED operations and expect the case to get quashed soon.
Key risk: Any negative development in ED case can impact the borrowing capability of the firm.
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