Manappurm Finance hits 52-week high; up 11% in a week on improved outlook

CRISIL Ratings believes MFL's capitalisation and asset quality will remain strong supported by its gold loan business.

Shares of Manappuram Finance (MFL) hit a 52-week high of Rs 127.50 as they rallied 3 per cent owing to improved business outlookon in Monday’s intra-day trade in an otherwise subdued market . The stock of non-banking finance company surpassed its previous high of Rs 126.15, touched on April 7, 2022. In comparison, the S&P BSE Sensex was down 0.16 per cent at 58,899 at 11:46 AM.

In the past one week, MFL has surged 11 per cent after the credit rating agencies maintained ‘stable’ outlook on the company’s instruments/ bank facilities.

CRISIL Ratings reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities and outstanding debt instruments of MFL. Brickwork Ratings (BWR) believes MFL’s consolidated business and credit risk profile will be maintained over the medium term. The ‘Stable’ outlook indicates a low likelihood of a rating change over the medium term.

MFL is a non-deposit-taking NBFC that provides finance against personal gold ornaments. The consolidated assets under management as on December 31, 2022, stood at Rs 31,883 crore registering year-on-year (YoY) growth of 5 per cent. The gold loan AUM stood at Rs 18,614 crore as on December 31, 2022, registering YoY de-growth of 9 per cent on account of continuous intense price competition from Banks and NBFC’s in gold loan segment. CRISIL Ratings expects company’s growth to increase over the medium term in a calibrated manner.

The rating agency believes MFL's capitalisation and asset quality will remain strong supported by its gold loan business. The strong earnings will also provide support as the company diversifies into other asset classes and scales up its non-gold business.

CRISIL Ratings believes that the gold loan AUM will continue to account for around two-third of the consolidated AUM and over 80 per cent of consolidated profit over the medium term. Consequently, the consolidated credit profile has the ability to absorb asset quality and earnings risks in the microfinance, vehicle or housing finance businesses in the near term.

BWR on March 28, downgraded and withdrawn the rating of Bank Loan facilities of Rs 3915.57 crore of MFL, at the request of the company and after obtaining NOC from all the lenders for the withdrawal of rating. 

The rating downgrade necessarily factors in the weakening of asset quality over the years on an annual basis, and upto nine monthly performance of FY23 (9MFY23). The Net NPA ratios were at 0.47 per cent in FY20, 1.53 per cent in FY21 and 2.72 per cent in FY22. The same were at 1.03 per cent in 9MFY22 which weakened to 1.42 per cent in 9MFY23, and hence the provisioning though adequate, its impact on profitability shall remain a monitorable over the near term, BWR said in its rating rationale.

A substantial increase in the AUM and profitability with sustained asset quality and improved capitalisation levels will be key rating positives. A substantial deterioration in asset quality and capitalisation levels, and lower-than-expected growth in the AUM and profitability will be key rating monitorable, the rating agency said.