Manappuram Finance Share Price Can Reach Rs 205: Motilal Oswal Research
Motilal Oswal has issued a detailed research report on Manappuram Finance, maintaining a "Neutral" rating with a target price of Rs 205, implying a 14% upside from the current market price of Rs 180. The report highlights key developments, including the RBI’s recent revocation of restrictions on Asirvad Microfinance, a subsidiary of Manappuram Finance, and its positive implications for the company’s microfinance and gold loan businesses. Despite improvements in operational metrics and loan growth, challenges persist in asset quality and potential margin compression in both segments.
RBI Revokes Ban on Asirvad Microfinance
Key Development
The Reserve Bank of India (RBI) has lifted the restrictions imposed on Asirvad Microfinance regarding loan sanctions and disbursements. This ban, enforced in October 2024, had significantly impacted operations. The revocation follows Asirvad's adoption of remedial measures and revamped processes that align with regulatory guidelines.
Positive Implications
The lifting of restrictions allows Asirvad to resume its microfinance and gold loan disbursements, improving operational efficiency and supporting loan growth. Motilal Oswal estimates an increase in Asirvad’s microfinance loan growth at 15% in FY25 and 17% in FY26.
Financial Performance and Revised Projections
Updated PAT Estimates
Motilal Oswal has revised its PAT estimates upward for FY25, FY26, and FY27 by 2%, 7%, and 8%, respectively. This revision factors in higher loan growth from the microfinance business and margin compression from reduced lending rates.
Key Financial Metrics
| Metric | FY25 | FY26 | FY27 |
|---|---|---|---|
| NII (Net Interest Income) | Rs 64.5 billion | Rs 71.1 billion | Rs 82.4 billion |
| PAT (Profit After Tax) | Rs 21.7 billion | Rs 24.4 billion | Rs 30.4 billion |
| RoA (Return on Assets) | 4.4% | 4.3% | 4.6% |
| RoE (Return on Equity) | 17.4% | 16.9% | 18.1% |
Loan Growth
Manappuram’s overall loan book is expected to grow by 11.7% in FY25, supported by strong gold loan demand and recovery in the microfinance segment.
Technical Analysis: Key Levels and Target
Support and Resistance Levels
Immediate Support: Rs 175
Critical Support: Rs 165
Immediate Resistance: Rs 190
Target Price: Rs 205
Fibonacci Levels
Using the 52-week high of Rs 230 and low of Rs 138, the key Fibonacci retracement levels are:
23.6% Retracement: Rs 161
38.2% Retracement: Rs 178
50.0% Retracement: Rs 184
61.8% Retracement: Rs 199
Valuation and Investment View
Gold Loan Business
Manappuram’s gold loan segment remains a core revenue driver, benefiting from robust demand for short-term loans. However, the company is facing potential margin compression due to a strategic shift toward higher-ticket loans.
Asset Quality Concerns
The microfinance sector continues to grapple with asset quality challenges arising from customer overleveraging. Elevated credit costs are expected to persist over the next 2–3 quarters, which may impact profitability.
Valuation Metrics
| Metric | FY25 | FY26 | FY27 |
|---|---|---|---|
| P/E Ratio | 7.0x | 6.3x | 5.0x |
| P/BV Ratio | 1.1x | 1.0x | 0.8x |
| Dividend Yield | 2.2% | 2.4% | 2.8% |
Actionable Insights for Investors
Short-Term Strategy: Investors may consider entering near Rs 175, targeting Rs 205, with a stop-loss at Rs 165.
Medium-Term Potential: Improved microfinance operations and gold loan demand could drive upward momentum toward Rs 230.
Long-Term View: While asset quality concerns remain, the stock’s low valuation and strong business fundamentals offer an attractive entry for long-term investors.
Conclusion: Balancing Opportunity with Risk
Manappuram Finance’s lifting of restrictions on Asirvad Microfinance marks a significant step toward recovery and growth. While the company benefits from strong loan growth in its core gold loan segment, challenges in the microfinance business and potential margin pressures warrant cautious optimism. Motilal Oswal’s target price of Rs 205 provides a balanced perspective, reflecting both growth potential and inherent risks. Investors should consider both technical levels and fundamental factors when building positions in the stock.
