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With Manappuram Finance trading below its 5-year average of ~1.1x P/BV, domestic brokerage and research firm Axis Securities believes that the underperformance of the financial stock in the past few quarters is priced-in. Against this backdrop, the brokerage expects the company should see an upside from here on with its overall performance improving in the coming quarters.

Sharing as its top stock pick of the week, the brokerage has recommended a BUY rating on the Manappuram Finance shares with a target price of 122 apiece, implying an upside of about 15% from the current stock level.

The company's management expects to maintain yields at ~21% in the near future. It also expects yields on Gold loans to improve further with demand for the small ticket size loan from the bottom of the pyramid customers going up. Its balance sheet liquidity remains comfortable with no funding challenges and only 2.7 times leverage, Axis Securities highlighted. 

The net interest margins or NIMs on incremental MFI business has gone up to 15% post the new Reserve Bank of India (RBI) guideline on removal on the cap on spreads which should augur well for overall better-blended yield realization.

“Additionally, the growth guidance for the Gold Loan book remains intact at 10% for FY23. We believe the growth in the gold loan book should come back with increased participation from high-yielding low-ticket size loans and a good monsoon season," it added.

Further, the brokerage believes with around 22% of the asset under management (AUM), the guided growth of 20% with significant improvement in NIMs and credit cost, the company's MFI segment should augur well for the growth aspirations of the company. 

A strong balance sheet and favourable liability mix profile has helped MGFL to control the impact of higher borrowing cost with a slight 10bps sequential increase in the consolidated cost of borrowings in Q1FY23, it added.

Manappuram Finance (MGFL) is amongst the leading gold loan NBFCs in India and is well-diversified into other business segments comprising Housing Loan, Vehicle Loan, and Microfinance with a branch network of about 5,000 spread across the country.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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