MUMBAI - Espirito Santo Securities has uprgraded its recommendation on Manappuram FinanceBSE 0.55 %to 'Buy' and increased its target price to Rs 45, an upside of over 23 per cent from the current market price.
According to the brokerage, the company has been facing pressure due to regulations on the gold loan industry. From a high growth sector with more than 25 per cent ROE and enterprising management, it saw a declining loan book, falling ROE, a more hostile regulatory environment and concerns raised around governance.
"Manappuram has been a regular source of disappointment for the market over the past 12+ months, with the company in news for all the wrong reasons (from regulatory to governance). The recent disappointment on NIMs (declined 250bps QoQ) was yet another blow to the stock, leading to it falling >10% in the last month. All this has led to it trading at a 50 per cent discount to its peer Muthoot," the report said.
With the stock trading at a discount to book and expectations of the loan book growing from hereon, the brokerage think the stock merits another look. It expects that clarity on regulatory issues will be received this calendar year, after which the stock is likely to get re-rated.
"Manappuram is trading at 0.9x FY14E BV, a 50% discount to its closest peer Muthoot. Our excess return model values the stock at Rs.45, implying a 1.2x FY14E BV. In the bull case (based on management expectations), the fair value of the stock could be Rs 66, suggesting 84 per cent upside from current levels. While in the bear case, the downside is limited to 18 per cent," the report said.
The stock ended at Rs 36.40, up 0.55 per cent, on the BSE. It touched a high of Rs 36.75 and a low of Rs 35.95 in trade today.
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