Accumulate Manappuram Finance; target of Rs 195: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Manappuram Finance

We are initiating coverage on Manappuram Finance (MGFL) with an Accumulate rating given strong moat in gold loan business (11%CAGR over FY20-22, secured lending, brisk asset liquidation) and rising scalability of non-gold business. MGFL stands in a sweet spot underpinned by low leverage (<5x) and effective asset liability management (ALM). We estimate 20% AUM CAGR, operating leverage (~145bps cost-income decline) and prudent asset quality (~0.8% GNPA/credit costs) over FY20-22E. The recent valuation uptick has been factoring in the higher yielding business (87% of total) expansion that is expected to fetch higher returns (5.1%RoA/18.9%RoE: FY22E). However, any further re-rating is function of non-gold business scalability and delinquency control across new business cycles.

Outlook

Hence, we recommend Accumulate rating valuing consolidated business at 1.9x PABVSep'21E arriving at price target of Rs 195.

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