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UBS Investment Research
Manappuram Finance
S teady start
Event: Numbers in line with estimates
MGFL reported Q1FY12 net profit of Rs 1.1 bn (up 134% Y/Y, 6% q/q) which
was slightly lower than estimated. Strong growth in AUMs continued with 20%
q/q increase to Rs 90 bn while spreads contracted 120 bps q/q due to increase in
cost of funds. Funding were impacted due to removal of PSL status for gold loans
and NBFCs however with increase in lending rates in Q2, we expect NIMs to be
stable. Net NPA inched up on account of seasonal trends; which led to uptick in
cost to income to 49% (from 48% in Q4FY11) due to higher provisions.
Impact: Maintain estimates; growth outlook healthy
We maintain our estimates. Given the under-penetration of gold financing market,
we do not expect cyclical increase in rates and a macro slowdown to impact
MGFL’s growth. We estimate assets under management (AUM) to grow at 43%
CAGR over FY11-13E. Asset quality risks appear low due to available collateral
and ease of its liquidation.
Action: Buy, Risk reward favorable
While regulatory risks to a large extent is getting priced in while high growth and
high RoE is largely getting ignored in our view. Competitive risks from private
bank are increasing however the target segment and ticket size differs.
Valuation: Looks attractive at 2.2xFY12 book and 10.6x FY12 earnings
We derive our price target of Rs 77.50 (ex bonus) based on residual income model
which implies 2.7x FY12E book.
Manappuram Finance
Manappuram General Finance and Leasing (MGFL), founded in 1992, is a nonbanking
finance company providing various fund and fee-based services. It is
primarily engaged in providing loans against household gold jewellery pledged
by individual borrowers. It is India's largest listed and highest credit-rated gold
company. MGFL had AUM of Rs75bn and 2,064 branches in 19 states as at
March 2011, with more than 75% of branches in south India. In May 2010,
MGFL undertook a stock split in the ratio of 5:1. As on March 2011, the foreign
institutional investors held 30% of the outstanding capital.
Statement of Risk
The key risks to our forecasts include stringent regulatory actions, capping of
interest rates, decline in gold prices, adverse liquidity situation, increased
competition and miss in execution of branch roll out.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Manappuram Finance
S teady start
Event: Numbers in line with estimates
MGFL reported Q1FY12 net profit of Rs 1.1 bn (up 134% Y/Y, 6% q/q) which
was slightly lower than estimated. Strong growth in AUMs continued with 20%
q/q increase to Rs 90 bn while spreads contracted 120 bps q/q due to increase in
cost of funds. Funding were impacted due to removal of PSL status for gold loans
and NBFCs however with increase in lending rates in Q2, we expect NIMs to be
stable. Net NPA inched up on account of seasonal trends; which led to uptick in
cost to income to 49% (from 48% in Q4FY11) due to higher provisions.
Impact: Maintain estimates; growth outlook healthy
We maintain our estimates. Given the under-penetration of gold financing market,
we do not expect cyclical increase in rates and a macro slowdown to impact
MGFL’s growth. We estimate assets under management (AUM) to grow at 43%
CAGR over FY11-13E. Asset quality risks appear low due to available collateral
and ease of its liquidation.
Action: Buy, Risk reward favorable
While regulatory risks to a large extent is getting priced in while high growth and
high RoE is largely getting ignored in our view. Competitive risks from private
bank are increasing however the target segment and ticket size differs.
Valuation: Looks attractive at 2.2xFY12 book and 10.6x FY12 earnings
We derive our price target of Rs 77.50 (ex bonus) based on residual income model
which implies 2.7x FY12E book.
Manappuram Finance
Manappuram General Finance and Leasing (MGFL), founded in 1992, is a nonbanking
finance company providing various fund and fee-based services. It is
primarily engaged in providing loans against household gold jewellery pledged
by individual borrowers. It is India's largest listed and highest credit-rated gold
company. MGFL had AUM of Rs75bn and 2,064 branches in 19 states as at
March 2011, with more than 75% of branches in south India. In May 2010,
MGFL undertook a stock split in the ratio of 5:1. As on March 2011, the foreign
institutional investors held 30% of the outstanding capital.
Statement of Risk
The key risks to our forecasts include stringent regulatory actions, capping of
interest rates, decline in gold prices, adverse liquidity situation, increased
competition and miss in execution of branch roll out.
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