Axis Securities has issued a BUY recommendation on Manappuram Finance Ltd., revising its target price to Rs 340 per share, signaling an upside potential of ~11% from the current market price of Rs 305.

Executive Summary: Earnings Recovery Backed by Gold Loan Momentum

Manappuram Finance appears to be entering a decisive recovery phase, underpinned by robust growth in its core gold loan franchise and early stabilization across stressed non-gold portfolios. The company delivered a strong Q4FY26 performance, with profits significantly outperforming expectations, driven by improving asset quality and lower credit costs. While margin pressures persisted due to yield rationalization, management indicates that this phase is nearing completion. With aggressive branch expansion, calibrated risk management, and improving return ratios, the outlook suggests a sustained earnings rebound, justifying the upgrade to a BUY rating with a target of Rs 340.

Gold Loans Emerge as the Dominant Growth Catalyst

Manappuram’s gold loan business has decisively reasserted itself as the primary growth engine. The company reported a remarkable 31% QoQ growth in gold loan AUM, aided by a sharp 20% increase in gold prices and higher loan volumes.

The structural tailwinds are equally compelling:

Removal of regulatory bottlenecks for branch expansion
Planned addition of 500–550 new branches in FY27
Introduction of consumption and livelihood-linked loans, expanding customer reach

Gold loans now account for 79% of total AUM, reinforcing the company’s strategic pivot toward a high-yield, secured lending model.

Non-Gold Segments: Stabilization Over Aggression

The company is adopting a disciplined approach to its non-gold portfolio.

Microfinance (MFI): Early signs of stabilization with 4% QoQ growth, supported by improved disbursements
Vehicle Finance (VF): Undergoing consolidation with tightened underwriting and revamped collections infrastructure
Housing Finance: Strategic shift toward higher ticket-size affordable housing loans

This calibrated strategy prioritizes asset quality over rapid expansion, a necessary correction after past stress cycles. Management expects gradual improvement as these segments mature.

Margins Near Bottom; Stability Ahead

Margin compression appears to be largely behind the company.

Gold loan yields declined by ~100 bps QoQ in Q4FY26, but management believes yields have bottomed at 17.5–18% levels.

Key margin drivers going forward:

Stabilizing cost of funds (CoF)
Improved pricing discipline
Focus on smaller, yield-accretive loans

Net Interest Margins (NIMs) are expected to stabilize around ~9.3%, providing earnings visibility over FY27–FY28.

Strong Financial Performance with Earnings Beat

The Q4FY26 results exceeded expectations on profitability metrics.

Profitability was boosted by sharply lower credit costs and controlled operating expenses, while cost-to-income improved to 48.6%.

Asset Quality Improvement Gains Momentum

Asset quality trends are clearly improving, albeit unevenly across segments.

Consolidated GNPA stands at 2.14%
Significant recovery in collection efficiency (NACH recovery improved to ~90%)
Credit costs declined sharply to 148 bps

While MSME and vehicle finance portfolios remain areas of concern, targeted corrective actions—such as segmented collection teams and digital monitoring—are already yielding results.

Revised Earnings Outlook and Estimates

Axis Securities has significantly upgraded its forward estimates, reflecting improved confidence in earnings recovery:

Return ratios are expected to improve materially, with RoA projected at 2.8–3% and RoE at 13–15% over the medium term.

Valuation Re-rating Justified by Structural Improvements

The stock is currently valued at ~1.4x FY28E ABV, leaving room for re-rating.

Axis Securities values the company at 1.6x FY28E ABV, arriving at a target price of Rs 340, implying a moderate but attractive upside.

The re-rating thesis hinges on:

Sustained gold loan dominance
Stabilizing margins
Declining credit costs
Improving return ratios

Key Risks to Monitor

Despite improving fundamentals, certain risks remain material:

Slowdown in credit demand affecting AUM growth
Execution risks in scaling new lending products
Residual asset quality stress in non-gold portfolios

Investment Verdict: Positioned for a Multi-Phase Recovery

Manappuram Finance is transitioning from a repair phase to a growth phase.

With its gold loan franchise firing on all cylinders and structural improvements underway in weaker segments, the company is well-positioned to deliver consistent earnings growth. The combination of stable margins, improving asset quality, and disciplined expansion creates a favorable risk-reward equation.

Recommendation: BUY | Target Price: Rs 340 | Investment Horizon: 12–18 months