Manappuram Finance Q1FY17 Result Update By Motilal Oswal

Manappuram is today geared up to tap financing opportunities across the spectrum and has realigned its business model to derisk it from volatility in gold prices as well as to sustainably grow its AUM at over 20% in coming years. This shall be achieved by: (i) Focusing more on shorter term products (3 months) which eliminates the risk of any steep fall gold prices impacting the company; (ii) Adopted push approach instead of pull earlier by reaching out to customers through enhanced marketing and branch activation efforts and linked employee incentives to sourcing business, timely recovery and default rates; (iii) Foray into synergistic non-gold businesses – Microfinance, Home Loans and CV Loans (to form 25% of AUm by FY18 from 12% in FY16. Company aspires to reduce its good AUM to less than 50% of the total AUM by focusing on growing its Microfinance AUM to 20% of total and Home Loans AUM to 30% of total in the long run.

Improvement in NIMs and a fall in cost/income ratio should result in strong expansion of ROA/ROE from 3%/12.8% in FY16 to 4.9%/22.4% in FY17E. We expect Manappuram to deliver PAT growth of 93%/27% in FY17E/18E. We value the standalone business at 2.5x FY18 ABV (lower than our average target P/B of 3x for asset financiers like MMFS, CHOLA and SHTF having inferior return ratios and asset quality); the microfinance business at 3.6x FY18E ABV (20% discount to our target multiple for SKSM) and housing finance business at 2.5x FY18 ABV (at 25% discount to industry). Consequently, our SOTP value for the company is at INR 114 (earlier INR 75).