Manappuram Finance Research Report By KR Choksey

With a huge beat on PAT at INR 1924 mn (sturdy 20% sequential growth), Manappuram Finance (MGFL) recorded an all-round performance for Q2FY17. Product diversification strategy and rising gold loan volumes (gold holdings up 15% Y-o-Y; leveraging the on-line gold loan product) coupled with improved gold loan quality hinging upon reduction in auction losses and greater thrust on collections emerging from rapidly improving microfinance segment have boosted the earnings for the quarter. Strong loan book traction (clocking 11% Q-o-Q, 40% Y-o-Y growth) and best-in-class asset quality (gross NPAs at 0.9% at 90 dpd).

Therefore, with legacy issues behind and regulatory environment turning favorable in turn aiding traction in gold portfolio, MGFL’s strategy of foraying into higher yielding non-gold products such as microfinance and home finance will form the key levers to growth sustainability ahead. With structural growth story in place and operating leverage flowing through, MGFL stands geared to build a scalable and profitable model. Capital sufficiency (Tier 1 at 21.4%, CAR at 21.8%) with lower gearing levels (leaves ample scope for increase and in turn fuel growth), rating upgrades from agencies and healthy return profile further reinforces our confidence in the company prompting us to MAINTAIN BUY.