Shares of Manappuram Finance hit 52-week low of Rs 128.70 after they slipped 10 per cent on the BSE in Tuesday’s intra-day trade after the financier reported 46 per cent year-on-year (YoY) drop in consolidated net profit at Rs 261 crore in December quarter (Q3FY22), due to weak operational performance. Net interest income (NII) fell 12 per cent YoY to Rs 915 crore driven by a sharp compression in spreads.
The stock of the gold finance company has fallen below its previous low of Rs 139, touched on April 22, 2021. In the past three months, it has underperformed the market by falling 35 per cent, as compared to 7 per cent decline in the S&P BSE Sensex.
In Q3FY22, profit before tax (PBT) of gold loan and others segment declined 44 per cent YoY at Rs 347 crore, while PBT of microfinance (MFI) business dipped sharply to Rs 0.78 crore from Rs 32.18 crore in Q3FY21.
The demand environment in Gold loans is not very buoyant, and the management has clearly articulated that it does not wish to pursue growth at the cost of a further compression in spreads. Credit costs remained elevated in its MFI subsidiary due to the residual impact of the second Covid wave. However, analysts expect credit costs to now moderate from Q4FY22 onwards.
“In the last two quarters, MGFL traded off margin/spreads for Gold loan growth. This new business strategy helped it cover a lot of lost ground in terms of market share, with a cumulative Gold loan growth of around 24 per cent over Q2 and Q3FY22. This new strategy also meant elevated advertising/promotion costs and incentives for employees translating in higher operating expenses, and compression in spreads to around 11.5 per cent v/s 14.5-15 per cent under its earlier high yielding business model,” Motilal Oswal Financial Services said in a result update.
“At this juncture, MGFL can neither afford such high operating expenses, nor can it cut yields further to match the competition. The natural outcome of this will be a near-term moderation in Gold loan growth for MGFL,” the brokerage firm said.
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