Manappuram Gen Fin : BUY

The Impressive Show Continues

Manappuram (MGFL) continued its growth ride in 4QFY11 with an AUM growth of 191% YoY and 16% QoQ to Rs 75.5 bn. The co’s  PAT  grew  by  151%  YoY  to  over  Rs  1  bn. Strong business growth supported NII growth at 162% YoY and 25% QoQ to Rs 2.9 bn, despite a steep rise in cost of borrowings (up 87 bps QoQ to 10%). Asset quality improved with Net NPA ratio declining by 4 bps QoQ to 0.1%. The company has cut down on its share of assigned portfolio to 15% (from 22% in Dec-10) due to change in classification norms (priority  sector status) by RBI. Despite sequential de-growth in assigned loans, overall margins have been protected with the support  of capital infusion done in Q3FY11.

Key highlight

• Growing distribution network:  MGFL has opened 269 branches during Q4, taking its network to 2,064 branches catering to over a million customers (1.2 mn) across India. This significant expansion in its network supported the strong AUM growth.
• Well capitalized: MGFL is sufficiently capitalized (CAR at 30.3%) owing to recent capital raising and healthy internal accruals. With leverage of just 3.6x, it is well positioned to grow its AUM without any fresh capital requirement in the near-term.

Maintain BUY with Target Price of Rs 160

The management expects MGFL’s branch network to reach ~3,000 by Mar-13 and the average business per branch is likely to increase with seasoning of branches. Incrementally, securitizing the portfolio will become difficult with guidelines from RBI, which will increase on-book AUM share. This will put pressure on margins but management expects to compensate it by reducing opex wherein they have already spent heavily on expansion & advertisement. We expect RoEs to expand to 26% by FY13E with increase in leverage. We maintain our BUY rating on the stock with a Target price of Rs 160 (2.8x FY12E ABV and 13x FY12E EPS) – upside of 20% from CMP of Rs 133.