Manappuram Finance shares get a downgrade after Q2 results; Here are the key triggers ahead

Shares of Manappuram Finance Ltd. are in focus on Friday, October 31, brokerage firm CLSA downgraded the stock to "hold" after its September quarter earnings.

Manappuram Finance has more analysts who are "neutral" on the stock, compared to those who are bullish or bearish. Five out of the 17 analysts covering the stock have a "buy" rating, nine say "hold", while three have a "sell" rating.

The consensus estimates of price targets implies a potential downside of 1.3% from current levels. Here's a look at what analysts had to say:

CLSA 

The brokerage has downgraded the stock to "hold" from "outperform" and reduced its price target by 6.5% from ₹310 apiece to ₹290 per share.

It said Manappuram Finance's standalone profit after tax (PAT) in the second quarter missed estimates by 12%, largely driven by higher credit costs.

Its key subsidiary Asirvad MFI, also reported another quarterly loss, driven by shrinking pre-provision operating profit (PPOP) and elevated credit costs.

In the gold loan business, the same strategy continues, reducing yields to spur growth and in turn, benefit from operating leverage, CLSA said.

The company's gold loan book grew 9% sequentially to ₹31,500 crore, while reported yields moderated 80 basis points sequentially to 19.7%.

The growth was driven primarily by higher gold prices, while tonnage and loan-to-value (LTV) were unchanged, it said.

Jefferies 

The brokerage has a "hold" rating on the stock with a price target of ₹285 per share.

Manappuram's asset under management (AUM) growth was in-line with estimates. Its net interest margin (NIM) declined sequentially and Manappuram General Finance and Leasing Ltd. (MGFL) further cut gold loan yields to push growth, the brokerage said.

The asset quality in the MFI business is stabilising, but the auto gross non-performing assets (GNPA) increased sharply from the previous year. The company's new CEO

Deepak Reddy outlined key priorities of the company and said will provide a roadmap during the fourth quarter, Jefferies said.

The  brokerage is of the view that lower NIMs and unwinding of non-gold loans should dampen earnings, even as its valuations seem reasonable.

The visibility around the new CEO turning around the franchise, stays the key to Manappuram's re-rating, Jefferies said.

Manappuram Finance shares ended the previous session 0.3% lower at ₹275.75 apiece. The stock has gained 19.5% in the last six months and 43.9% this year, so far.

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