Top pick: Axis Securities suggests buying this financial stock this week

While Manappuram Finance is trading below its 5-year average of around 1.1x P/BV, national brokerage and research firm Axis Securities believes that the underperformance of the financial stock over the past few quarters is integrated. Against this backdrop, the brokerage expects the company to see an upside going forward, with its overall performance improving in the coming quarters.

Sharing as its best stock pick of the week, the brokerage recommended a BUY rating on Manappuram Finance shares with a target price of 122 each, which implies an increase of approximately 15% compared to the current level of stocks.

Company management expects to hold yields at around 21% for the foreseeable future. He also expects Gold loan yields to improve further as demand for smaller loans from bottom-of-the-pyramid clients increases. Its balance sheet liquidity remains comfortable, with no funding issues and leverage of just 2.7x, Axis Securities pointed out.

Net interest margins or NIMs on additional MFI business increased by 15% after the new Reserve Bank of India (RBI) directive on removal of spread cap, which should bode well for achievement overall better mixed yields.

“Furthermore, the growth forecast for the gold loan portfolio remains intact at 10% for FY23. We believe gold loan portfolio growth should return with increased participation from high yield loans and low cost and a good monsoon season,” he added.

Further, the brokerage estimates that with approximately 22% of Assets Under Management (AUM), guided growth of 20% with significant improvement in NIMs and cost of credit, the firm’s MFI segment is expected to be bodes well for the company’s growth aspirations.

A strong balance sheet and favorable liability mix profile helped MGFL control the impact of rising cost of borrowing with a slight 10bps sequential increase in consolidated cost of borrowing in Q1FY23, it said. he adds.

Manappuram Finance (MGFL) is one of India’s leading gold lending NBFCs and is well diversified into other business segments including housing lending, car lending and microfinance with a network of around 5 000 branches spread all over the country.

The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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