Manappuram Fin is analysts' favorite this week

Manappuram Finance, the second largest gold loan lender, is underperforming the market for various reasons. Lacklustre numbers for the fourth quarter of 2020-21 is the first reason. For instance, its gold loan AUM fell by 6% q-o-q. Gold loan defaults have correlation to prevailing gold prices—defaults will be lower when gold prices go up and will be higher when gold prices come down. With 12% q-o-q decline and 21% decline from peak levels witnessed in second quarter, gold prices tested the systems at Manappuram. Manappuram was able to maintain its gross non performing asset (GNPA) below 2% by auctioning off the gold pledged by defaulters. Gold auctions in fourth quarter stood at Rs 404 crore, compared to just Rs 8 crore during the first nine months of 2020-21. Fall in gold loan AUM was a result of fall in gold prices and auctions.In addition to gold price volatility, lockdowns induced by second wave of Covid is also hampering its operations in several ways. Fresh disbursements are getting impacted due to lockdowns and collection efficiency coming down due to cash flow stress faced by borrowers. That means investors should be ready for soft numbers in the first quarter of 2021-22 as well.While things are under control on the gold loan front, concerns about the non gold portfolio (around 30% of its overall loan book) is keeping its valuations lower and is the main reason for its underperformance. For example, the collection efficiency of its micro finance division reached 100% mark in the fourth quarter, but the same deteriorated by around 7-8% in first quarter of 2021-22. While collection efficiency of the home loan segment is relatively stable, it is under pressure by around 10% for vehicle finance segment.However, analysts say that long term investors can use the current underperformance as entry opportunities. Things have started improving on the ground and loan growth as well as asset quality are expected to improve from the second quarter. Loan demand from micro and small enterprises are expected to improve from the second quarter as they need capital to restart business. Analysts believe that Manappuram will be able to end 2021-22 with a gold loan growth of around 15%. With comfortable liquidity and a tier 1 capital adequacy of 21%, Manappuram should be able to finance this growth pick up easily. 84090449 Selection MethodologyWe pick up the stock that has shown the maximum increase in “consensus analyst rating” during the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.(Graphics by Sadhana Saxena/ET Prime)

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