Manappuram Finance extends gain; stock rallies 14% thus far in March

Shares of Manappuram Finance gained 3 per cent to quote Rs 116.85 on the BSE in Tuesday's intra-day trade, extending its past four days' upward movement. Moreover, in the past one week, the stock has rallied 6 per cent as compared to 0.11 per cent decline in the S&P BSE Sensex.

Thus far in the month of March, the stock of the non-banking financial company (NBFC) has surged 14 per cent, as against 1.9 per cent fall in the benchmark index. The stock inched towards its 52-week high level of Rs 126, touched on April 7, 2022.

Manappuram Finance has been serving the credit requirements of people belonging to the lower socio-economic classes, particularly in rural and semi-urban areas of India. The company offers a range of retail credit products and financial services. It has a diversified lending portfolio encompassing retail, microfinance, SME, and commercial customers. It has been the second-largest gold finance NBFC in India.

In the past few years, banks have become key players in the gold lending industry. During the same time period, the growth rate of new gold loans at banks has been higher than that of non-bank lenders.

On the demand side, a growing number of individuals, households, and enterprises in India are anticipated to apply for gold loans during a period of tighter credit and higher gold prices, as well as increased financial stress caused by income loss due to moderation in economic activity. Moreover, if credit standards for other financial instruments tighten, they may continue to borrow repeatedly (re-pledging their gold collateral to draw further new loans). On the supply side, banks intend to aggressively expand their gold loan assets by modernising their existing digital lending infrastructure to improve turnaround time.

Gold loan NBFC industry is characterised by relatively high opex (ranging from 4 per cent to 6 per cent), which is offset by relatively high spreads, and lowest credit cost (ranging from 0.5 to 1 per cent historically) resulting in a healthy return on total assets (ROTA).

"Going forward, the growth of gold loan NBFCs is expected to remain moderate considering the prevailing competitive scenario from the banks, especially in the higher ticket segment with continuation of low credit cost and relatively higher ROTA," CARE Ratings said in a rationale.

Analysts at Prabhudas Lilladher, too, believe the company is on the right track in ensuring margins are protected. Conversely microfinance, commercial vehicles, home loan, msme/personal loans are performing strongly thereby compensating for the slowdown in the gold loan business. The brokerage has a 'BUY' rating on the stock. Re-rating can happen once gold loan AUM starts seeing growth again, it said in a Q3FY23 result update.