Manappuram Finance’s (MGFL) Q4FY17 numbers came below trend as demonetisation and political interference impacted gold loans and MFI business. While gold loan disbursements normalised a tad up 1.7% q-o-q , higher auctions bunched up in Q4FY17 led to AUM dip of >9% q-o-q to Rs 111 billion. MFI business reported a loss of ~Rs 75 million as GNPLs rose sharply to 4.7%, 0.16% in Q3FY17 leading to higher provisioning of Rs 396 m up > 10x y-o-y. Meanwhile, other businesses— home loans, CV loans — posted impressive growth. Diversification will entail lower risks of mono-line business model.
Disbursements in Q4FY17 stood at Rs 123 billion (up ~1.7% q-o-q); however, higher auctions Rs 7.9 billion, bunched up in Q4FY17) led to >9% q-o-q dip in gold AUMs. Meanwhile, under-recoveries were minuscule due to tilt towards shorter-duration loans. Sustained yields, along with better funding cost, bolstered revenue momentum. Management expects demonetisation impact to wane in FY18 and growth to normalise. Notably, other businesses—MFI book touched Rs 18 billion and home loans & CVs at >Rs 3 billion each—are making good progress. MGFL aims to take proportion of new business to 25% (~19% currently) by FY18 and 50% by FY20 with overall loan CAGR target of 20%.
GNPLs in MFI business spiked to 4.7% (0.16% in Q3FY17) with stress largely flowing from Karnataka MGFL has limited exposure to other stressed states of UP & Maharashtra, which along with aggressive provisioning policy, took a toll on MFI earnings.
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We see growth levers: a) stabilising gold prices; gap in AUM/gram (Rs 1,821 versus incremental lending at Rs 1,900-2,000; and stabilising auctions to aid growth. However, following lower AUM base set in FY17 and uncertainty following new rule of cash disbursements being restricted to Rs 20k, along with higher opex, we prune our FY18/FY19 earnings estimates by 6%/10%. Further push will come from scale up of other businesses, which will drive re-rating. The stock is trading at 1.7x FY19E P/BV (consolidated). We maintain ‘Buy/SO’ with TP of Rs 120.