The Reserve Bank of India (RBI) has lifted its ban on lending to Asirvad Micro Finance, a subsidiary of Thrissur-based Manappuram Finance. Following this development, shares of Manappuram Finance saw a rise, reaching Rs 181.23 on the Bombay Stock Exchange (BSE) today.
The ban, imposed in October last year, had lasted for six months and was tied to concerns about excessive interest rates and lapses in loan approval procedures. The RBI had flagged these issues while also taking similar action against Delhi-based DMI Finance Private Limited. Asirvad Micro Finance had been under scrutiny, with the RBI indicating that penalties could be reconsidered upon compliance with regulatory guidelines.
It appears that Asirvad Micro Finance managed to address these issues swiftly, adhering to the conditions set by the RBI within three months. The company’s management had assured investors during the ban period of their commitment to aligning with the RBI’s requirements.
Manappuram Finance, which acquired Asirvad Micro Finance in 2015, derives a significant portion of its business from the subsidiary. Asirvad contributes about 25% of the total assets under management (AUM) for Manappuram. However, the ban reportedly dented the company’s profitability.
In the second quarter of the financial year 2024-25, Manappuram Finance’s profit saw a modest 2% increase, reaching Rs 571 crore. While this was a positive outcome, the challenges with Aashirvad seemed to have tempered the overall growth.
In contrast, the company’s gold loan segment has shown stronger performance. Gold loan assets grew by 17.1%, buoyed by record-high domestic gold prices, which may have supported the growth for gold-focused lenders like Manappuram.
Manappuram Finance’s shares have experienced notable fluctuations in recent months. Just before the ban, the stock was priced at Rs 180 on October 16, but it tumbled by 13% to Rs 138.35 on October 18 following the RBI’s announcement. Since then, the stock has gradually recovered, reaching Rs 192.9 on January 2.
Manappuram Finance shares remain under a Futures and Options (F&O) ban, meaning no new positions can currently be taken in this stock.
Brokerage firm Jefferies has set a target price of Rs 190 for Manappuram Finance and recommends holding the stock. While lifting the ban on Asirvad is seen as a positive step, the brokerage has flagged potential pressure in the microfinance segment that could weigh on lending activities.
Meanwhile, Morgan Stanley has kept its earlier “equal weight” rating on the stock, with a slightly lower target price of Rs 170. Over the past year, Manappuram’s stock has gained about 5%, a relatively modest performance when compared to its rival, Muthoot Finance, which saw a 47% rise in its share value during the same period.
