Shares of Manappuram Finance Ltd. gained as much as 3.53% after BofA Global Research initiated coverage on the stock with a ‘buy’ rating and a target price of Rs 225.
In a note, it said that the NBFC’s existing valuation “grossly undervalues its gold loans business” and that a re-rating would be on the cards once its microfinance institution credit costs improve. “We look past the near-term stress in its MFI share, which is 22% of its portfolio and see a business well-placed to deliver 20% earnings-per-share growth and 24% return on equity through FY24.”
It added that it expects the impact of the second Covid-19 wave to wear down by second quarter of FY22 and gold loans to resume their “steady state growth of 12-15% per annum” as branches reopen by then. “A renewed focus on adding customers, the latest loan-to-value ratio at 63% and scope for a sustained increase in ticket size allows for a positive surprise on asset growth,” it said.
In the long-term, BofA said it thinks Manappuram’s MFI arm Asirvad can deliver cross-cycle RoEs in “high-teens”, with strict caps on state and district exposures acting as prudent risk mitigation strategy.
It listed hikes in gold price, lower than expected credit costs and value-unlocking from its potential Asirvad spin-off as upside catalysts, while significant decline in gold price, Covid 3.0 and asset quality cycles in Asirvas as downside risks.
Shares of Manappuram Finance Ltd. gained as much as 3.53%, the most since May 31 this year, to Rs 168.5. Of the 16 analysts tracking the stock, 13 have a ‘buy’ rating, three suggest a ‘hold’ and none recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 24.2%.