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Manappuram
3Q: Earnings beat; Buy for
growth, high return ratios
3Q: Earnings up 117% yoy driven by strong AUM growth
MGFL reported earnings of Rs1.6bn, a 117% yoy growth and +9% higher than
est. driven by stronger than est. AUM growth of ~90% yoy (~15% qoq).
Disbursements growth also strong at 86% yoy (Rs104bn) in 3Q, partly aided by
higher gold prices. Average LTV (AUM) at ~69%. Moreover, spreads were stable
qoq at <14%. Cost-inc. ratio more or less stable yoy at ~43%, despite +45%
employee base yoy and +50% branches (2738 now) yoy. Asset quality is
comfortable, with gross largely stable at ~45bps and net at ~19bps.
Other variables too showing traction, key for future growth
The average loan outstanding per branch increased 24% yoy (6% qoq) to
Rs45mn in 3Q. MGFL added 0.14mn customers in 3Q12 (total customer base
now at 1.6mn). The company opened 235 branches in 3Q12 (943 branches in the
last 12 months), taking its total branches to 2,738.
Buy for growth, high RoAs and rising RoEs
We have raised earnings by +9/4% for FY12/13 post the 3Q surprise. We
estimate net profit growth at +94/28% over FY12/13 driven by AUM growth (+45%
CAGR over FY11-13) and operating leverage (+35% of branches added in last 1
year). Hence, RoAs to remain high (+4.5%) and RoEs to improve (~22% in FY11
to +26% in FY13), as an improvement in operational efficiency would largely
mitigate adverse impact of margin compression ahead (est. ~100bps compression
over FY11-13). Our FY12/13 est. factors in 1.0% gross NPLs / credit costs at +50-
60bps (<20bps now). Hence, we believe stock trading at ~2.2x FY12E book may
likely trade at similar multiples one-year out (FY13), implying a PO of Rs80.
Price objective basis & risk
Manappuram (XMGPF)
We set our PO at Rs80/shr. for MGFL. MGFL is the second largest NBFC with
market share of +7-8% in organized segment. We believe the stock trading at
+2.2-2.3x FY12E book will likely trade at similar multiples one-year out (FY13)
given a) high earnings trajectory (+67/28% in FY12/13E), b) rising return ratios
(ROEs to rise to +25.5% in FY12E and further to +26.5% in FY13E) and c)
comfort on asset quality (gross only at 44bps). Our PO is based on Gordon theory
multiples assuming RoE of 25%, CoE at 14% and sustainable growth of 6%), as
growth potential for MGFL is strong. Our Rs80 price objective implies P/E of 9.5x
FY13E EPS (trades at 9x FY12E earnings), with higher earnings trajectory. Risks
toour price objective are a rise in theft and fraud and increase in compeitition,
which can hurt growth. In light of RBIs recent actions, while the cost of capital will
go up, access to capital also could be challenging as banks may no longer find it
attractive to lend to gold finance companies. MGFL's inability to scale up in a
timely manner its risk management systems in line with expanding business could
potentially lead to asset quality issues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Manappuram
3Q: Earnings beat; Buy for
growth, high return ratios
3Q: Earnings up 117% yoy driven by strong AUM growth
MGFL reported earnings of Rs1.6bn, a 117% yoy growth and +9% higher than
est. driven by stronger than est. AUM growth of ~90% yoy (~15% qoq).
Disbursements growth also strong at 86% yoy (Rs104bn) in 3Q, partly aided by
higher gold prices. Average LTV (AUM) at ~69%. Moreover, spreads were stable
qoq at <14%. Cost-inc. ratio more or less stable yoy at ~43%, despite +45%
employee base yoy and +50% branches (2738 now) yoy. Asset quality is
comfortable, with gross largely stable at ~45bps and net at ~19bps.
Other variables too showing traction, key for future growth
The average loan outstanding per branch increased 24% yoy (6% qoq) to
Rs45mn in 3Q. MGFL added 0.14mn customers in 3Q12 (total customer base
now at 1.6mn). The company opened 235 branches in 3Q12 (943 branches in the
last 12 months), taking its total branches to 2,738.
Buy for growth, high RoAs and rising RoEs
We have raised earnings by +9/4% for FY12/13 post the 3Q surprise. We
estimate net profit growth at +94/28% over FY12/13 driven by AUM growth (+45%
CAGR over FY11-13) and operating leverage (+35% of branches added in last 1
year). Hence, RoAs to remain high (+4.5%) and RoEs to improve (~22% in FY11
to +26% in FY13), as an improvement in operational efficiency would largely
mitigate adverse impact of margin compression ahead (est. ~100bps compression
over FY11-13). Our FY12/13 est. factors in 1.0% gross NPLs / credit costs at +50-
60bps (<20bps now). Hence, we believe stock trading at ~2.2x FY12E book may
likely trade at similar multiples one-year out (FY13), implying a PO of Rs80.
Price objective basis & risk
Manappuram (XMGPF)
We set our PO at Rs80/shr. for MGFL. MGFL is the second largest NBFC with
market share of +7-8% in organized segment. We believe the stock trading at
+2.2-2.3x FY12E book will likely trade at similar multiples one-year out (FY13)
given a) high earnings trajectory (+67/28% in FY12/13E), b) rising return ratios
(ROEs to rise to +25.5% in FY12E and further to +26.5% in FY13E) and c)
comfort on asset quality (gross only at 44bps). Our PO is based on Gordon theory
multiples assuming RoE of 25%, CoE at 14% and sustainable growth of 6%), as
growth potential for MGFL is strong. Our Rs80 price objective implies P/E of 9.5x
FY13E EPS (trades at 9x FY12E earnings), with higher earnings trajectory. Risks
toour price objective are a rise in theft and fraud and increase in compeitition,
which can hurt growth. In light of RBIs recent actions, while the cost of capital will
go up, access to capital also could be challenging as banks may no longer find it
attractive to lend to gold finance companies. MGFL's inability to scale up in a
timely manner its risk management systems in line with expanding business could
potentially lead to asset quality issues.
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