Manappuram Finance shares hit 15% lower circuit after RBI restrictions, multiple downgrades

Shares of Manappuram Finance nosedived 15% to hit their lower circuit in an early trading session today after the Reserve Bank of India (RBI) imposed restrictions on four NBFCs (including Manappuram) citing material supervisory concerns.

Following the update, the stock earned multiple rating downgrades and target price cuts from various brokerage firms.

This will be effective from October 21, 2024.


The four mentioned entities are Asirvad Micro Finance (a subsidiary of Manappuram Finance), Arohan Financial Services, DMI Finance, and Navi Finserv.

Post the regulatory action, the stock of Manappuram attracted downgrades from various brokerages. Here is what they say:

Morgan Stanley: Equal-weight| Target price: Rs 170

Morgan Stanley has downgraded Manappuram Finance to Equal-weight from Overweight while cutting the target price to Rs 170 from Rs 262.

RBI's embargo on new business by Asirvad could hurt profits materially and for longer. The company could face a rise in funding costs and could have to support Asirvad with funding. A loan growth moderation could also be faced, however, tighter credit practices and higher provisioning are likely to give comfort to all stakeholders. Despite this and earnings cuts at the standalone entity, standalone valuation remains cheap. However, Morgan Stanley believes that the investor interest could take long to return.

BofA: Buy| Target price: Rs 220

BofA maintained its Buy rating on the stock but cut the target price to Rs 220 from Rs 250.

RBI has restricted loan sanctions/disbursals by MFI sub which cuts the earnings estimates and factor de-rating. BofA has also cut the consolidated earnings forecasts by 3-6% as they factor AUM growth moderation in Asirvad. Manappuram stock has de-rated 25% over the last 3 months which BofA believes already factors the growth weakness and asset quality deterioration to a great extent. The global brokerage firm has retained its Buy rating on undemanding valuations, discount to historical valuations and a strong outlook for gold financing business.

Jefferies: Hold| Target price: Rs 167

Jefferies has downgraded the stock to a Hold rating from a previous Buy while also cutting the target price to Rs 167 from Rs 270.

RBI has imposed restrictions on Asirvad (MGFL's MFI subsidiary) and select NBFCs which is likely to hurt earnings and hence Jefferies has cut the FY25-26 EPS 11-19%. There are now risks of Asirvad needing to raise capital and the parent may have to infuse capital if the subsidiary's net worth is eroded. However, valuations limit downside potential.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)