Buy Manappuram Finance; target of Rs 225: Motilal Oswal

Motilal Oswal's research report on Manappuram Finance

Manappuram Finance (MGFL)’s 4QFY24 consol. PAT grew ~36% YoY, but it dipped 2% QoQ to INR5.6b (5% miss). FY24 PAT rose ~44% YoY to INR21.6b. NII grew ~33% YoY to ~INR14.9b (in line), and PPoP jumped ~52% YoY to ~INR9.3b (in line). Consol. credit costs stood at ~INR1.9b (est. of ~INR1.6b) due to elevated credit costs from the MFI business. Annualized credit costs for the quarter rose to ~1.8% (PQ: ~1.5%). We cut our FY25/FY26 PAT estimates by ~4% each to factor in lower noninterest income and higher credit costs from the non-gold product segments. We estimate a 11%/19% AUM CAGR in gold/consolidated AUM over FY24-26. We model a ~16% consolidated PAT CAGR over the same period to arrive at a consolidated RoA/RoE of ~4.9%/20% in FY26. Reiterate BUY (as the risk-reward is still favorable at a valuation of 0.9x FY26E P/BV) with a TP of INR225 (based on 1.2x FY26E consolidated BVPS).

Outlook

We believe that there is scope for a re-rating in valuation multiples for a franchise that can deliver a sustainable RoE of ~19-20%. Reiterate BUY (as the risk-reward is still favorable at a valuation of 0.9x FY26E P/BV) with a TP of INR225 (based on 1.2x FY26E consolidated BVPS).