Manappuram Finance Ltd. has seen its shares plummet by 15% following the Reserve Bank of India’s (RBI) directive to its subsidiary, Asirvad Micro Finance, to cease all loan sanctions and disbursements. This regulatory action has triggered a wave of downgrades from several brokerage firms, significantly impacting investor sentiment.
RBI’s Intervention Sparks Concerns
The RBI’s intervention, announced on October 17, 2024, was prompted by concerns regarding non-compliance with assessment protocols for household income and repayment obligations related to microfinance loans. Asirvad Micro Finance is a crucial part of Manappuram’s operations, accounting for approximately 25% of its overall Assets Under Management (AUM). This recent development is expected to have a substantial negative effect on the company’s profitability in the coming quarters.
Brokerage Reactions and Downgrades
Brokerage firm CLSA has adjusted its outlook on Manappuram Finance, maintaining an “outperform” rating but reducing its price target from ₹240 to ₹200. CLSA noted that the profitability estimates for Asirvad have been revised downward due to the RBI’s actions. Similarly, Morgan Stanley downgraded the stock to “Equal-weight,” slashing its target price from ₹262 to ₹170, citing potential long-term impacts on profits.Jefferies has also weighed in, downgrading Manappuram Finance to “hold” with a new target price of ₹167. The firm expressed concerns that Asirvad may need additional capital if defaults rise, further straining Manappuram’s earnings. Despite these downgrades, Jefferies believes that the stock’s current valuation—trading at 0.9 times its FY2026 price-to-book value—limits potential downside.
Current Market Performance
As of October 18, 2024, shares of Manappuram Finance traded at ₹150.73, marking a significant decline from previous levels and reflecting a broader trend of reduced investor confidence. The stock has now corrected by 23% from its recent peak of ₹230 earlier this year.
Conclusion: Navigating Turbulent Waters Ahead
In summary, while Manappuram Finance remains a key player in the gold financing sector, the recent regulatory actions against Asirvad Micro Finance pose serious challenges ahead. Investors and analysts will be closely monitoring how the company navigates these turbulent waters in the coming months.
