Why Manappuram Finance Share Price is Rising

The Indian financial sector is a vibrant marketplace brimming with immense potential. Driven by several key factors, this sector is experiencing a period of significant growth.

A rising population, increasing disposable incomes, and a growing awareness of financial products are all contributing to this expansion. This surge in demand for financial services is particularly pronounced in areas like insurance, wealth management, and retail banking.

One company that is reflecting the growth in finance sector is Manappuram Finance. This name has recently garnered considerable investor attention, fueled by its impressive stock price performance.

In 2024 alone, Manappuram Finance share price witnessed a remarkable rally of 29%. And the momentum seems to be continuing, with the company's stock price experiencing another noteworthy rise of 15.5% in the past month.

Let's explore the reasons behind Manappuram Finance's recent surge and delve deeper into its promising prospects within the flourishing Indian financial landscape.

#1 Rising Gold Price

Optimism is shimmering in the gold market, casting a golden glow on Manappuram Finance share price. A weakening US dollar is making gold a more attractive hedge against inflation, enticing investors. This directly the company.

As a prominent player in the gold loan sector, the company offers loans with gold as collateral. When the price of gold goes up, the value of the gold used as collateral also increases. This allows the company to offer larger loans to borrowers, potentially leading to higher revenue.

Additionally, a higher gold price translates to higher collateral value, providing a buffer for the company in case of loan defaults, improving their risk management profile.

Further fueling the gold price rally is the anticipation of a potential interest rate cut by the US Federal Reserve at their upcoming meeting.

Historically, rate cuts tend to weaken the dollar further, making gold even more attractive. This positive sentiment for gold is translating to the domestic market as well.

Experts point to the same forces driving the global market - a weaker dollar and easing concerns about US inflation. Recent data indicating a slowdown in US inflation, including better-than-expected job figures and a low annualised increase in the core PCE index, has further bolstered investor confidence in gold.

With these positive signs, the gold market appears to be on an upswing, and Manappuram Finance, positioned to benefit directly from this rise, is experiencing a corresponding surge in its share price.

As the US Fed meeting approaches and a potential rate cut decision hangs in the balance, all eyes will be on how both the gold market and the company's share price react in the coming days.

#2 Upcoming IPO

Manappuram Finance share price has been rising steadily eve since the approval of its subsidiary Asirvad Micro Finance's IPO on 30 April 2024.

Asirvad Micro Finance, a microfinance firm that provides microloans to low-income women, is a subsidiary of Manappuram Finance. It serves and empowers the unbanked and economically disadvantaged.

The IPO, which had been postponed earlier this year by SEBI, is a fresh issuance of equity shares worth up to Rs 15 billion (bn) without an offer for sale component, with a face value of Rs 10 per share.

Reportedly the delay in the IPO was due to several issues highlighted by SEBI. While two of the three issues were resolved quickly, the third took an estimated 15 to 30 days to address.

There is a potential private placement of additional equity shares worth Rs 3 bn, which would reduce the IPO size if completed.

The approval and upcoming IPO of Asirvad Micro Finance have positively impacted Manappuram Finance's share price. Investors are optimistic about the growth potential and increased capital base for Asirvad, which in turn boosts confidence in Manappuram Finance overall business prospects.

What Next?

Manappuram Finance is focusing on several initiatives and future plans to ensure sustained growth and profitability. The company is working on securing the capital adequacy required for their operations, which currently stands at approximately 24%.

The company is also emphasising its capital allocation strategy, which prioritises secured lending. Only a small portion, around 10%, is allocated to unsecured lending, primarily microfinance. The company aims to improve its return on equity (ROE) to 20% on a sustainable basis by leveraging its capital more effectively.

Additionally, it is expanding into non-gold secured lending areas such as MSME and vehicle finance. The vehicle finance business has seen significant growth, with a 69% increase year-on-year (YoY), and an AUM of Rs 41.1 bn.

Its home loan business has also grown, with a 37.8% increase over the previous year, reaching an AUM of Rs 15.1 bn. The company sees potential in the affordable housing segment and is keeping a close watch on this area.

The company is also working to improve its collection efficiency and reduce non-performing assets (NPAs). The management is confident that these measures, along with the upcoming IPO of Asirvad Microfinance, will help achieve both top-line and bottom-line growth while maintaining comfortable liquidity levels.

How Manappuram Finance Share Price has Performed Recently

In the past five days, Manappuram Finance share price has rallied 7.1%. In the last month, it is up 15.9%.

In 2024, so far its share price has surged 29.7% and its up 72.3% in the last one year.

The stock touched its 52-week high of Rs 229.8 on 15 July 2024 and a 52-week low of Rs 122.7 on 14 July 2023.

About Manappuram Finance

Manappuram Finance, previously known as MAGFIL, is an Indian non-banking financial company (NBFC) based in Valapad, Thrissur, Kerala.

MAGFIL, the flagship company of Manappuram group, was established in the wake of economic reforms launched by the government of India mainly to take advantage of the importance assigned to leasing as a vehicle to promote a decentralised pattern of economic growth through small and medium enterprises.

Fund-based and fee-based services are offered by the company including secured loans, gold loans, personal loans, instant money transfers, foreign exchange, bonds, non-convertible debentures, life insurance, general insurance, hire purchase, and leasing schemes.

The company, through its subsidiary, Manappuram Insurance Brokers Pvt also provides life insurance products, and general insurance products, such as motor, health, travel, and property and liability insurance. Further, it acts as an agent for housing loans and car loan of banks.

For more details about the company, you can have a look at the Manappuram Finance factsheet and quarterly results on our website.

For a sector overview, read our finance sector report.

You can also compare Manappuram Finance with its peers.

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And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...