Manappuram Finance shares rise after promoter, CEO clarification; Motilal Oswal Securities sees stock at Rs 150 level

Shares of Manappuram Finance jumped 4 per cent in Monday's trade after clarification by the MD & CEO VP and promoter Nadakumar, suggesting that the Enforcement Directorate (ED) inspection pertained to a 10-year old matter and that there are no governance issues in the company.

Manappuram Finance said the case is related to an erstwhile proprietorship concern, Agrofarms (Magro), which was subjected to regulatory scrutiny at that point of time. The matter is being updated to the regulators at periodical intervals, Manappuram Finance said, adding that it is in touch with legal advisors to remedy the situation. The Manappuram Finance board noted that the ED action has nothing to do with Manappuram Finance and has no impact on financial operations of the NBFC.

The stock rose 4.07 per cent to Rs 109.90 on BSE.

"The company has intimated the stock exchanges the representation received from Nandakumar. The company has communicated the matter to regulators and will inform further developments as and when received on the matter. The board will continue to monitor the developments on the matter," it said.

There are no governance issues in the company and that there are no related-party transactions between Manappuram Finance and Margo, Motilal Oswal Securities said citing Manappuram Finance's clarification. Also, the ED has not mentioned any irregularities related to Manappuram Finance in the order, it said.

"Manappuram Finance’s customers come from rural backgrounds who value the quick turnaround in loan delivery and how the lender can support them. Its customers are unlikely to be affected by these events and their perception of MGFL is unlikely to change. Management shared that these developments should not impact the lending operations of Manappuram Finance," Motilal Oswal Securities said.

The domestic brokerage said the company has proactively communicated the developments with lenders and does not expect any challenges with regards to its ability to raise liabilities. "It maintains sufficient liquidity of around Rs 1,000 crore and undrawn lines of around Rs 3,000 crore for repayments and supporting growth," Motilal Oswal said.

Nandakumar has petitioned the Kerala High Court for quashing the FIR. The case is expected to come up for hearing in the court on May 9, Tuesday. Nandakumar, as per Motilal Oswal Securities, said his legal counsel is confident of obtaining a stay on the ongoing ED investigation and getting the release of all assets that have been frozen. He promised that updates on the legal proceedings will be communicated through the public media periodically.

"MGFL trades at 0.8 times FY24E P/BV. While there could be near-term volatility in the stock price, we would monitor the legal proceedings in the case very closely. Any clarifications from the regulators or other authorities will be keenly watched. We model a consolidated AUM CAGR of 18 per cent over FY23-25E with consolidated RoA/RoE of 4 per cent/18 per cent over FY25E," it said while suggesting a target of Rs 150 on the stock.

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