CMP Rs24, Target Rs37, Upside 54%
Source: Company, India Infoline Research
- Manappuram’s AUM declined 6% qoq (by Rs7.3bn) to Rs116.3bn on the back of 4% decline in gold stock and reduction in average LTV. Since the Manappuram Agro issue in February, the company had deliberately slowed asset growth. There was also some funding constraint in the form of large borrowing repayment. For the full-year FY12, AUM growth was robust at 54% yoy largely driven by handsome rally in gold price as volume growth was modest at 13%. Company has been adhering to the new 60% LTV cap regulation and the entire loan book is expected to shift to below 60% LTV by July-August. This transition would likely lead to further AUM decline (marginal though) in H1 FY13. We expect 9% and 25% AUM growth in FY13 and FY14 respectively.
- Average loan yield improved sequentially by ~100bps during Q4 FY12 to 26.4%, attributable to the change in product mix. As per the management, company terminated lower yielding products (12%, 15% and 18% loans) during the quarter. Manappuram expects its average yield to be in the range of 23-25% post the LTV transition. However, we prefer to work with a range of 21-22%.
- Increase in the cost of borrowing was higher than expected at 130bps qoq to 13.7%. The quarter was characterized by higher borrowing rates from banks, spike in wholesale funding cost and issue of high-cost (13-13.5%) NCDs. Further, the company did not amortize the charges related to sanctioning of new bank limits. Cost of borrowing is expected to remain stable in Q1 FY13 and then decline in line with general interest rate.
- NIM stood resilient declining only 50bps qoq to 14.5%. On account of substantial yield compression over the next 3-4 quarters, we estimate NIM to decline to 10.5-11%. So NII growth would likely be negative 15% in FY13.
- Branch addition slightly moderated to 170 during Q4 FY12. Management has guided at muted addition in FY13 (150-200 v/s 844 in FY12) in response to anticipated slower asset growth. Employee addition was also muted during the quarter with 9% sequential decline in employee cost. There was 11-12% qoq decline in advertising cost and other opex. Cost rationalization drove a significant improvement in Opex/Avg Asset ratio from 6.3% in Q3 FY12 to 5.4% in Q4 FY12. With leverage in advertising expenditure still available, we expect the ratio to be in the range of 5.1-5.3% in the medium term.
- Resilient NIM and opex rationalization led to RoA improvement of 20bps qoq to 5.2%. However, RoA would undergo severe compression in FY13 (2.8%) while recovering partially in FY14 (3.5%). RoE is estimated to correct sharply form the current level of 30% and sustain near 20% in the longer term. With Tier-1 capital at 20.5%, capitalization remains robust to support longer term asset growth and meet regulatory requirements.
- We have revised upwards our earnings estimates substantially for FY13 and FY14 on the back of higher NIM and lower opex ratio assumptions. Since out last report dated March 30th, the stock has corrected significantly offering material upside from current level. Upgrade Manappuram to BUY with 9-month price target of Rs37.
|(Rs mn)||Q4 FY12||Q3 FY12||% qoq||Q4 FY11||% yoy|
|Total Interest Income||7,907||7,264||8.9||4,145||90.8|
|Net Interest Income||4,362||4,301||1.4||2,938||48.5|
|Key Ratios||Q4 FY12||Q3 FY12||chg qoq||Q4FY11||chg yoy|
|AUM (Rs mn)||116,308||123,582||(5.9)||75,492||54.1|
|Addition to AUM (Rs mn)||(7,274)||17,572||(141.4)||10,514||-|
|Gold Stock (MT)||65.6||69.5||(5.7)||53.0||23.8|
|Customers (mn no)||1.6||1.7||(1.2)||1.2||37.8|
|Yield on AUM (%)||26.4||25.3||1.1||23.6||2.8|
|Cost of Borrowing (%)||13.7||12.4||1.3||10.0||3.7|
|NIM (%) - Calculated||14.5||15.0||(0.4)||16.7||(2.2)|
|Opex/Avg Assets (%)||5.4||6.3||(0.9)||7.4||(2.0)|
|Net NPA - Gold Loans (%)||0.3||0.2||0.1||0.1||0.2|
|Y/e 31 Mar (Rs m)||FY11||
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