ICICI Securities has upgraded Manappuram Finance from 'Hold' to 'Buy,' identifying an inflection point for the company as it shifts its core focus toward gold loans, tightens asset quality controls, and brings in new leadership. With a target price of Rs305, representing an 18% upside from the current mark of Rs259, investors are poised for robust potential gains. The firm’s projected AUM growth and lucrative future prospects eclipse a historically unsteady track record. Aggressive changes in business mix, expansion of gold franchise, and a newly appointed CEO drive this re-rating. Risks include regulatory delays and asset quality volatility in non-gold segments, but valuation remains attractive at 1.7x FY27E P/B.

Robust Target Price Reaffirmed by Future Strategy

ICICI Securities’ SoTP methodology sets Manappuram’s target price at Rs305, up from Rs260, based on:

1.7x P/B valuation for standalone gold loan business (up from 1.5x)

1x P/B for MFI (unchanged)

1x P/B for home finance/other businesses for FY27E BV

Growth assumptions fuelling the forecast :

Standalone gold loan AUM expected to rise 25% in FY26E, 15% in FY27E

MFI AUM to shrink by 15% in FY26E, but rebound 20% in FY27E

Home finance AUM forecast to expand by 18% in FY26E, 16% in FY27E

Consolidated AUM CAGR of approximately 16.2% between FY26E and FY27E

Business Model Evolution: Gold Loan Dominance

Management aims for gold loans to constitute 75% of the consolidated loan book over time, up from the current 65%:

Secured loans targeted to reach 90% of portfolio, with unsecured MFI dropped below 10%

Product innovation and strategic yield reduction aim to attract larger ticket customers

Subsidiary expansion plans:

Asirvad’s 1,100 non-gold branches slated for gold loan rollout, extending network to 5,000+ branches by year-end

Decisive Management Shake-Up and Leadership Reinvigoration

New CEO, Deepak Reddy, brings three decades of financial sector expertise, notably from Bajaj Finserv:

Reddy’s immediate focus is to assess and strategize for growth in gold loans, vehicle loans, housing finance, and digital lending

V.P. Nandakumar to become Chairman, effective August 28, 2025

CEO’s stance:

While the strategic roadmap is still gestating, Reddy underlines his “strong thoughts and exciting plans,” promising clarity after hands-on evaluation

Gold Loan Franchise: Volume Over Yield in Pursuit of Scale

Key operational insights:

Average gold loan yield trimmed to 20.7% in Q1FY26 from 22.2% in Q4FY25

Yield is being reduced in a phased manner to match NBFC market leaders

Management relies on volume gains to counter lower yields; expects yields to stabilize at 18-19%

Customers with tickets above Rs100,000 comprise growing share, now at 19.1%, with plans to reach 30% in line with industry peers

Financial Performance and Stock Levels

Financial Summary (FY24A - FY27E):

Asset Quality and Risk Controls: Navigating Through Turbulence

Recent challenges have pressured Asirvad Microfinance, leading to heavy credit costs and subdued performance:

MFI AUM dropped sharply; PAT deeply negative for FY25, though recovery is anticipated FY26 onwards

Risk controls include stringent borrower selection, biometric verification, and a robust collection apparatus

Gross NPA for vehicle finance has spiked to 9.2% amid tightened underwriting and selective disbursals

Cost Efficiency and Funding Structure

Management is proactively trimming costs and optimizing funding:

Opex to AUM ratio down to 5.8% in Q1FY26, from 6.1% in Q4FY25

Cost of funds steady at 9.2%, expected to decline further due to favorable MCLR movement and improved negotiation capabilities

Short-term borrowings at 26%, signaling a gradual shift to longer tenured funding instruments

Bain Deal and Regulatory Catalysts Ahead

Bain’s acquisition process is on track, with approvals from CCI already secured:

Exchange and RBI clearances are expected shortly

New gold loan branches contingent on regulatory permission, likely resolving within a month

ESG Performance: Marked Improvements in Governance

ESG scores have advanced from 74.4 to 77.2 YoY, with an outstanding jump in governance disclosure (up 7.2 points):

Environment and social scores also marginally up, indicating holistic progress on sustainability frameworks

Investor Takeaways: Clear Buy with Defined Levels

Stock Levels and recommended investor action:

Current Price: Rs259

Target Price (12M horizon): Rs305

Key support levels: Rs250, Rs238 (recent lows)

Resistance levels: Rs285 (52-week high), Rs305 (target)

Promoter holding stable; institutional participation rising, especially FII stake now at 30.7%

Dividend yield improving incrementally, now projected at 1.8%

Bottomline: The Inflection Point for Manappuram Finance

ICICI Securities’ upgrade captures Manappuram’s transition toward a higher-growth, more secure business model, led by gold loan expansion and underpinned by tight cost and risk management. New leadership, strategic reshaping, and improved asset quality support the 'Buy' thesis. Investors should monitor developments in regulatory approvals and asset quality trends, while positioning around Rs250-305 levels for medium-term gains.