Manappuram Finance Shares Drop 13% As Analysts Slash Targets After Q3 Miss

Shares of Manappuram Finance Ltd. logged the worst day in six months as analysts cut price targets after the third quarter, citing higher operating expenses on account of a new pricing strategy to fend off competition, and poor demand for gold loan, among others.

The non-bank lender saw its net profit fall by close to half over the year earlier in the three months ended December. Its revenue also fell, while total costs rose 17%.

Q3 FY22 Highlights (Consolidated, YoY)

• Net profit down 46% to Rs 261 crore versus the Bloomberg consensus estimate of Rs 384 crore.

• Revenue fell 10% to Rs 1,484.45 crore against the projected Rs 1,044 crore.

• Total costs up 17% at Rs 1,158.67 crore.

• Other income at Rs 22.4 crore.

• Dividend per share at Rs 0.75.

Shares of Manappuram Finance tumbled 13.4% intraday on Tuesday, the worst since Aug. 11. The stock has dropped nearly 18% since it announced its third-quarter results during market hours on Monday, and closed with losses of over 10% on Tuesday.

Of the 20 analysts tracking the company, 17 suggest a 'buy' and three recommend a 'hold', according to Bloomberg data. The 12-month consensus price target implies an upside of 54.4%.

The stock's trading volume was nearly 11.4 times the 30-day average volume when markets closed. Its Relative Strength Index was at 21, suggesting it may be 'oversold'.

Here's what brokerages have to say about Manappuram Finance's Q3 results.

Motilal Oswal

• Maintains 'buy' but cuts target price to Rs 170 from Rs 220—still an implied return of 19%.

• The company's new business strategy has resulted in elevated advertising/promotion costs, incentives for employees and compression in yields.

• While the new business strategy helped the company cover lost ground in terms of market share, the company can neither afford such high operating expenses nor can it cut yields further to match the competition.

• Near-term moderation in gold loan growth for Manappuram looks very likely.

• Cuts FY23 and FY24 EPS estimates by 18% and 19%, respectively, to factor in a compression in spreads and lower loan growth.

• Demand environment in gold loans is not very buoyant.

Nirmal Bang

• Maintains 'buy' but lowers target price to Rs 184 from Rs 240—an implied return of 46.26%.

• Yield compression was higher than expected in Q3 amid the company's new pricing strategy to fend off competition.

• Weakness in customer acquisition and rising competition are crucial factors for the company to address.

• Cuts earnings estimates by 16-24% after factoring in lower spreads and elevated operational expenditure.

• Continues to prefer Muthoot over Manappuram based on better/stronger business model.

• Remains cognizant of undemanding valuation of Manappuram.

IDBI Capital

• Maintains 'buy' but reduces price target to Rs 200 from Rs 240—an implied return of 40%.

• Growth in tonnage led to the gold portfolio growth in Q3.

• Growth from lower yielding gold loans resulted in lower profitability.

• Mutual fund intermediaries reported deterioration in asset quality.

• Decline in yields on loan book due to competitive pressure led to the sequential fall in NIMs.