Slowdown in gold loans takes glow off Manappuram's Q3
1 min read . Updated: 06 Feb 2023, 12:25 PM IST
Premium- For the second consecutive quarter, AUM under its core gold loan business declined in Q3, and customer acquisition and gold holdings also reduced on a sequential basis
The December quarter (Q3FY23) earnings of non-banking gold loan company Manappuram Finance Ltd was dull.
For the second consecutive quarter, asset under management (AUM) under its core gold loan business declined, falling 3% sequentially and 9% year-on-year in the quarter.
The company's customer acquisition and gold holdings also reduced on a sequential basis in Q3. High competitive intensity and pricing pressure in its crucial gold loans business continue to play a spoilsport.
In this backdrop, the stock's reaction is not surprising. Shares of the company fell around 2.5% on the NSE in Monday's early trade.
Remember, to reduce its dependence on the gold loan portfolio, Manappuram has forayed into newer segments of home loans, vehicle finance and microfinance. In an earnings call, the management said that its strategy of diversifying into other segments is gaining pace. The management aims to become a diversified NBFC with 50:50 mix between gold and non-gold product segments, going ahead. In Q3, microfinance AUM rose 18% y-o-y and vehicle finance AUM grew 40% y-o-y.
According to analysts at Motilal Oswal Financial Services, the company should tread carefully in the non-gold segments as it is yet to exhibit any clear ‘right to win’ in these segments. "Good execution over the next few quarters will help build more confidence in its ability to scale non-gold products without associated risks on asset quality," said the Motilal Oswal report.
Meanwhile, as part of the company's succession strategy, Sumitha Jayasankar, the daughter of managing director VP Nandakumar has been appointed as an executive director. “One of the reasons why Manappuram Finance has traded at a steep discount to Muthoot is the lack of succession planning," pointed out the Motilal Oswal report. So, this clarity bodes well for investors confidence.
However, a meaningful re-rating of the Manappuram stock can happen only once its gold loan AUM starts recovering.
"While some re-rating of valuation from current undemanding levels (0.9x/5.7x FY24 PBV/PE) is plausible, significant re-rating hinges on growth acceleration in gold loans business," said analysts at Yes Securities Ltd. Also, while structural turnaround in gold loan growth is inconceivable at this point, the recent rally in gold prices offers hope, added the report.
