New Delhi: Gold loan company Manappuram Finance Limited’s March quarter (Q4FY23) results may bring some relief to its investors. The company’s core gold loan Assets Under Management (AUM) grew sequentially in the fourth quarter after declining for two consecutive quarters. Nevertheless, the AUM of gold is down 2.1% year-on-year (YoY). Higher gold prices have helped, along with a focus on new customer acquisition.
The management is confident of achieving 10% growth in gold AUM in FY24. The management said banks have become less aggressive in lending gold at relatively lower yields as credit growth to other sectors is improving. In Q4, Manappuram’s non-gold loan AUM improved. The microfinance segment was particularly striking. Overall, AUM growth in Q4 was 17.2% yoy.
But this positivity could be overshadowed by some near-term concerns. “Net interest margin (NIM) is expected to correct marginally in FY24 and FY25 due to reduction in gold loan yields and increase in cost of funds, but as long as the company can continue to show AUM growth Yes, the trade-off is favorable, said Akshay Ashok, research analyst at Prabhudas Lilladher. The management expects the cost of funds to be maintained at the current level, provided there is no further rate hike. In FY23, the cost of funds stood at 8.1%.
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Manappuram is actively diversifying into the non-gold loan segment to address the cyclical nature of gold loans. The share of non-gold loan AUM is expected to reach 50% in the next two years. Here, Motilal Oswal Financial Services cautions that the company should tread carefully in non-gold sectors as it has not yet demonstrated a clear ‘right to win’ in any of these.
Meanwhile, so far this month, Manappuram stock has declined 15% as recent searches by the Enforcement Directorate (ED) at the company’s premises dented investor sentiment.
The probe pertains to a decade-old case involving Manappuram Agro Farms, which was owned by Manappuram-based promoter VP Nandakumar.
Note that Nandakumar has received an interim stay from the Kerala High Court. The ED case may act as a near-term overhang for the stock till there is more clarity.
According to Yes Securities, uncertainties or risks from the ED case and possibly dearer funding or some growth headwinds have been significantly captured in the current valuation of 4.4x price to earnings and 0.7x price to adjusted book value on FY25 basis.
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