Manappuram Finance - Growth On Track, NIMs Decline; Result Update Q3FY15 ::Edelweiss, report

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Manappuram Finance’s (MGFL) PAT of INR806n came in below our estimate owing to slower traction at NII level, a function of NIMs decline (versus our improvement estimate). Key highlights were: (1) AUM sustained momentum (up 3.4% QoQ) benefitting from 19% YoY disbursement growth and lower auctions (INR1.75bn versus INR3.0bn in Q2FY15); (2) post Q2FY15 blip, GNPLs fell to 1% as guided by management, however the fall was sharper than envisaged; and (3) tight leash on operating costs persists as MGFL continues to rationalise headcount while keeping the number of branches constant. In light of strategic diversification to CV, housing and microfinance loans (discussed later) and valuations of 0.9x FY17E P/ABV.

Asset quality improves on expected lines

Post the Q2FY15 blip (GNPLs had inched up to 2% owing to delayed recovery), GNPLs during Q3FY15 fell to 1%, as guided by management, given focused effort on closure of overdue loans. Incrementally, following implementation of 75% gold loan LTV, concerns on asset quality and auction under recoveries (that had hurt profitability) are fading, given improved processes and focus on recoveries and collections.

Revenue traction slower on lower NIMs

NIMs were lower at 13.1% (down 60bps QoQ against our improvement estimate), largely due to 64bps decline in lending yields, which offset the benefit of 20bps fall in funding cost (management expects the decline in base rate cuts to further the funding cost benefit). This led to slower traction at the NII level (up 2% YoY, down QoQ).  However, this was cushioned by continued AUM momentum (up 3.6% YoY), benefitting from 19% YoY disbursement growth and lower auctions.

LINK
https://www.edelweiss.in/research/Manappuram-Finance--Growth-On-Track,-NIMs-Decline;-Result-Update-Q3FY15/28248.html