Prabhudas Lilladher recommended accumulate rating on Manappuram Finance with a target price of Rs 197 in its research report dated July 29, 2020.
Prabhudas Lilladher's research report on Manappuram Finance
As expected, gold price traction drove gold business buoyancy aiding PAT growth of 38%YoY but 8%QoQ decline led by 19%QoQ increase in provisions (Rs1.3bn COVID led provisioning for MFI). Disappointment came largely on asset impairments in non-gold businesses despite morat dispensation; namely, (a) 320bps QoQ spike in VF NPA to 9.9% (b) 5%+ HF NPA with no improvement QoQ (c) 54bps QoQ spike with MFI NPAs exceeding 2% mark. Morat phase 1 trends also do not provide comfort given the smaller book size particularly for VF (Rs12.7bn) and HF (Rs6.3bn) business where morat values stood at 37% and 32% respectively. MFI (Rs50.4bn) saw 85% morat AUMs as at May-end and stands vulnerable with rural outlook seemingly hazy. With COVID uncertainty looming large, provisioning buffers are expected to rise supported by liquidity buffers on BS (Rs60bn). Against this backdrop, we prune down growth and tweak provisioning estimates higher.
EPS estimates, therefore, stand trimmed by only 4% for FY21 as operating leverage plays out but FY22-23 estimates stand down by 7-12%. We, therefore, reiterate Accumulate rating, and rollover our target multiple to 2.1x as per Sep’22 PBV estimates implying price target of Rs197.
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