manappuram: New team, fresh funds give Manappuram extra shine

Manappuram Finance has gained 17% on bourses over the past month compared with the 8% gain in the BSE Financial Services index. The gold loan distributor is back on investors’ radar after staying range bound over the past 12 months following Bain Capital’s decision to infuse Rs 4,385 crore and acquire a controlling stake.

The development is expected to strengthen governance and allay concerns over succession planning while fresh equity will augment growth prospects in the medium term. Analysts have upgraded calls on the stock with a higher target price.

“The new equity raised should support the company’s capital buffer and growth prospects,” mentioned Fitch Ratings India in a report while cautioning that an intended change in the company’s executive team after the takeover, if not managed smoothly, may raise continuity risk.

After the completion of the transaction, Bain will acquire up to 41.7% stake in Manappuram depending upon the success of the open offer at Rs236 per share. The stake of existing promoters will reduce to 28.9% from around 35% currently.

Bain will have two board directors, which will help in having a management control over the company’s operations along with the existing promoters. The acquisition is expected to conclude by the end of the December 2025 quarter, subject to regulatory approval.

“Under the new leadership, the company will aim to fast-track its growth in gold loans by leveraging strong market position,” stated Motilal Oswal Financial Services in a report. The brokerage expects the new management to continue focussing on expanding the proportion of mortgage and vehicle financing in the total assets under management (AUM). The share of gold loans fell to 55.4% in the December quarter from 67% in FY20. During the period, the share of mortgage and vehicle financing increased to4% and 11.5% from 2% and 5% respectively. Intense competition and deteriorating asset quality in the microfinance segment, which formed 20.7% of the AUM, and the vehicle finance segment are the major challenges for the new promoter. IDBI Capital expects Manappuram’s gross nonperforming asset (GNPA) ratio to increase to 3.5% in FY25 compared with 2.4% in the previous year. Manappuram expects normalisation in the asset quality of the vehicle and home finance in the coming quarters amid improving collections.

IDBI Capital believes that with a new joint promoter, the company is well placed to regain lost ground in the gold loan segment. The brokerage has revised the stock call to ‘buy’ from ‘hold’ and increased the target price to Rs252 from 200 earlier, valuing it at FY27 expected price-book multiple of 1.2. The stock was traded at Rs 234.4 at the end of Wednesday’s session on the BSE.