Manappuram Finance rallies 8% in two days, trades near record high

Shares of Manappuram Finance moved higher by 2 per cent to Rs 170 on Thursday, inching towards its all-time high level on the BSE. The stock of non-banking finance company (NBFC) was trading close to its record high of Rs 174 touched on November 4, 2019. It rallied 8 per cent in the past two trading days on the back of heavy delivery-based volumes.

Till 01:35 pm, the trading volumes on the counter was almost double with a combined 5.9 million equity shares changing hands on the NSE and BSE.

Manappuram maintains significant capitalisation and strong profitability, tempered by rapid growth in relatively new sectors and operational risks inherent in its business.

For the first half (April-September) of financial year 2019-20, the company reported a strong 60 per cent year-on-year (YoY) growth in its consolidated net profit at Rs 671 crore. Net interest income (NII) rose 24 per cent to Rs 1,656 crore on YoY basis. Consolidated assets under management (AUM) grew by 32 percent to Rs 22,677 crore, from Rs 17,191 crore reported in the year-ago period.

Asirwad Microfinance (subsidiary contributing 21 per cent to consolidated AUM) also delivered a stellar performance with AUM growth of 73 per cent YoY, underpinned by a 25 per cent growth in customer base and 37 per cent growth in average outstanding.

The rating agency S&P Global Ratings on November 27, 2019, assigned 'BB-' long-term and 'B' short-term issuer credit ratings to the company. The stable outlook on Manappuram reflects that the company will largely maintain its financial profile over the next 12 months, despite a challenging environment, it added.

"We forecast Manappuram will sustain an extremely high risk-adjusted capital (RAC) ratio at over 30 per cent for the next 12 to 18 months. The RAC ratio was 30.8 per cent as of March 31, 2019. We expect the high-return gold and microfinance portfolios to help sustain capitalisation despite rapid growth. We forecast the RAC will remain between 31 per cent-35 per cent over the next two years," S&P Global Ratings said in a rating rationale.

"In absence of any adverse situations in MFI and CV businesses, we believe Manappuram can deliver 5.5 per cent plus RoA and 25 per cent plus RoE. We have always believed that transition to a 3-month product model in the gold loan business has lend solidity to the operations by significantly mitigating price risk and leading to higher customer retention. This is amply reflected in improved realised yields, lower auctions and no losses in auctions," analysts at YES Securities said in Q2FY20 result update.