Manappuram Finance Ltd. has recently experienced a dramatic decline in its share price, plummeting by 15% following the Reserve Bank of India’s (RBI) directive to its subsidiary, Asirvad Micro Finance. This regulatory action has not only led to multiple downgrades from various brokerage firms but has also raised critical questions among investors about whether to buy, hold, or sell their shares in the company.
The RBI’s Directive: A Game Changer
On October 17, 2024, the RBI mandated Asirvad Micro Finance to cease all loan sanctions and disbursements due to serious concerns regarding compliance with household income assessments and repayment obligations. This directive is set to take effect on October 21, 2024, and is expected to have far-reaching implications for Manappuram Finance, as Asirvad constitutes approximately 25% of its overall Assets Under Management (AUM).The immediate impact of this action has been significant. Analysts predict that the restrictions could materially affect Manappuram’s profitability in the coming quarters. With earnings estimates being revised downward across the board, investors are left grappling with the question of how to proceed.
Analyst Downgrades: A Mixed Bag
Following the RBI’s announcement, several brokerage firms have reacted swiftly. Morgan Stanley downgraded Manappuram from “Overweight” to “Equal-weight,” slashing its price target from ₹262 to ₹170. The firm expressed concerns that the RBI’s embargo could lead to a prolonged decline in profits.BofA Securities maintained a “Buy” rating but reduced its target price from ₹250 to ₹220, citing that the stock has already de-rated by 25% over the last three months. They believe this decline has factored in much of the expected growth weakness and asset quality deterioration.Jefferies took a more cautious stance, downgrading Manappuram to “Hold” with a target price of ₹167. They highlighted potential capital infusion needs for Asirvad if defaults rise, which could further strain Manappuram’s earnings.Despite these downgrades, some analysts remain optimistic. Out of 18 analysts covering Manappuram Finance, 12 still maintain a “buy” rating, indicating that there is still confidence in the company’s long-term prospects.
Current Valuation: A Double-Edged Sword
As of now, shares of Manappuram Finance are trading around ₹150.73, marking a significant correction from their recent peak of ₹230 earlier this year. The stock’s current valuation appears attractive at approximately 0.9 times FY2026 price-to-book value and a PE ratio of 7.13. This suggests that while immediate risks are evident, the stock may offer value for long-term investors willing to weather short-term volatility.
Should You Buy, Hold, or Sell?
- Buy: If you are a long-term investor with a high-risk tolerance, this may be an opportune moment to enter or add to your position in Manappuram Finance. The stock’s current valuation is appealing compared to historical averages, and many analysts believe that the gold financing business will rebound once regulatory issues are resolved.
- Hold: For existing shareholders who are uncertain about the immediate future but believe in the company’s long-term potential, holding onto your shares may be wise. Monitoring developments regarding Asirvad’s compliance and any potential capital requirements will be crucial.
- Sell: If you are risk-averse or concerned about further declines in share price due to ongoing regulatory scrutiny and earnings cuts, selling might be the best option for you. Given the current market sentiment and analyst downgrades, locking in losses could be a prudent decision.
Conclusion: A Cautious Outlook Ahead
In summary, while Manappuram Finance faces significant challenges following the RBI’s directive against Asirvad Micro Finance, there remains a mixed outlook among analysts regarding its future performance. Investors need to weigh their risk tolerance and investment horizon carefully when deciding whether to buy, hold, or sell their shares in Manappuram Finance.Disclaimer: The views expressed in this article are for informational purposes only and do not constitute financial advice. Investors should conduct their own research or consult with a financial advisor before making investment decisions as market conditions can change rapidly.
