Gold prices have had a rather dramatic move. After the 20% rally in last 1 month, the yellow metal has seen a sharp correction. It’s no surprise that gold loan companies are firmly on investors radar. Stocks in the segment have seen renewed interest as rising gold prices usually translate into higher loan demand and better collateral cover. Manappuram Finance, despite these favourable conditions has failed to fully impress the Street with its Q3 financial numbers. The global brokerage Jefferies, in its latest report, has chosen to stay cautious, retaining a ‘Hold’ rating on the stock.
Jefferies has set a target price of Rs 285 for Manappuram Finance. This implies a downside of around 2% from the current market price.
Let’s take a look at the key reasons why the brokerage house has retained ‘Hold’ rating on this stock –
Jefferies on Manappuram Finance: December quarter numbers raise concerns
The biggest reason behind Jefferies cautious stance lies in Manappuram Finance’s December quarter results (Q3FY26). According to the brokerage report, “Manappuram Finance’s Q3 profit came in below estimates due to lower net interest margins and higher provisions.”
The company reported a profit after tax (PAT) of Rs 240 crore, marking a 14% year-on-year decline and falling well short of Jefferies estimate of Rs 330 crore.
While assets under management grew at 18% year-on-year, profitability took a hit as margins continued to compress. According to the brokerage report, “Net interest margins fell sharply again as the company continues to reduce yields to align them with peers.”
Jefferies noted that higher provisioning also weighed on profits, particularly due to stress in the non-gold loan portfolio. The brokerage believes earnings will remain under pressure in the near term.
Jefferies on Manappuram Finance: Gold loans shine, but non-gold segments struggle
One bright spot in the quarter was the strong performance of the gold loan business. As per the brokerage house report, “Consolidated assets under management grew 14% quarter-on-quarter, led by 58% year-on-year growth in gold loan assets.” This is due to a sharp rise in gold prices and a modest increase in loan tonnage.
According to Jefferies, rising gold prices, which are up sharply year-to-date, should continue to support gold loan growth in the near term.
However, the picture looks less encouraging for Manappuram’s non-gold businesses. According to the brokerage report, “Non-gold assets under management fell 6% quarter-on-quarter as microfinance, vehicle and other loan segments continued to unwind.”
Jefferies pointed out that management plans to focus on strengthening branch infrastructure for gold loans while consolidating and cleaning up the non-gold loan book. Growth in non-gold segments, according to the brokerage, is unlikely to resume meaningfully before the first quarter of the FY27.
Jefferies on Manappuram Finance: Margin pressure remains a key overhang
Margin compression remains one of the biggest concerns for Manappuram Finance. According to the brokerage report, “Consolidated net interest margins fell 167 basis points quarter-on-quarter to 10.6%.” This was largely due to a reduction in gold loan yields as the company brought its pricing closer to industry peers.
While the cost of funds eased marginally during the quarter, it was not enough to offset the impact of lower lending rates. Jefferies believes margins may stabilise at lower levels over the next few quarters, but added that “the full impact of lending rate cuts could further drag margins in the next financial year.”
Jefferies on Manappuram Finance: Credit costs and asset quality still a worry
Another factor for the Jefferies ‘Hold’ rating is elevated credit costs. According to the brokerage report, “Credit costs remained higher than expected due to stress in the non-gold loan book.” While stress in the microfinance segment appears to be stabilising, asset quality challenges persist across other non-gold categories such as vehicle loans, small business loans and housing loans.
Gross non-performing assets continued to rise in several non-gold segments on a sequential basis. Jefferies expects some moderation in credit costs over the medium term, but sees limited relief in the immediate future.
Jefferies on Manappuram Finance: Valuation looks fair, upside limited
After cutting its earnings estimates for the current financial year, Jefferies believes the stock is reasonably valued at current levels. According to the brokerage report, “At the current valuation, the stock appears fairly priced given the near-term earnings pressure.” This led the brokerage to retain its ‘Hold’ rating with a target price of Rs 285.
Conclusion
Overall, Jefferies reports that the company is not facing a structural problem, but short-term challenges . Strong gold loan growth offers support, but falling margins, weak profitability and stress in non-gold loans limit upside potential for now.