Manappuram Finance: Bain Capital to take joint control; here're fresh price targets

Manappuram Finance Ltd (MGFL) shares were trading 3 per cent higher in Friday's trade, as Bain Capital is set to invest Rs 4,385 crore in the gold loan company for 18 per cent stake on a fully diluted basis through a preferential allotment of equity shares and warrants at Rs 236 apiece. This is 30 per cent above the six-month average trading price for Manappuram Finance and 9 per cent higher than its prevailing price. 

Analysts noted that onboarding a strategic investor and granting joint control for the company’s next phase of growth is a positive step, especially considering the limited visibility on succession planning. But there could be kitchen sinking in the next couple of quarters and analysts are not in a hurry to recommend 'buy' on the MGFL stock.

The acquisition, though, at significant premium reflects confidence in future growth, said Elara Securities. 

The transaction would trigger a mandatory open offer for the purchase of an additional 26 per cent stake in the company on an expanded capital basis. After the completion of this transaction, Bain Capital will own 18-41.7 per cent stake in the company on a fully diluted basis, depending on the open offer uptake. 

With this, the stake of existing promoters would decline to 28.9 per cent on a fully diluted basis from 35.3 per cent earlier.

"Bain Capital has a track record of scaling and running businesses in partnership with existing promoters in India. Notable past partnerships include 360 One WAM, L&T Finance, and Axis Bank in the financial services sector," said MOFSL that noted that Bain Capital would lead strategic transformation with the current Manappuram Finance promoter transitioning to non-executive role.

MOFSL said it would still need to monitor the execution under Bain Capital’s control as it will have to navigate the deeply ingrained processes and cultures at MGFL to successfully deliver a turnaround. "The first step in this direction will be to identify and appoint a professional CEO (for MGFL standalone and, where needed, for its group companies), who can then build a strong senior management team," it said while suggesting a target of Rs 240 on the stock.

Elara Securities said the wide valuation gap as against the market leader Muthoot Ltd at 2.4 times FY27P/ABV against Manappuram Finance's 1.1 times may not narrow down much until the latter corrects its structural deficiencies and meet competitive challenges. 

"While the transaction is expected to unfurl fully by Q2-Q3FY26, we reckon kitchen-sinking for another two quarters before MGFL wends its way towards strength. For now, this development and thus, the move towards professional management and the recent price uptick (20 per cent in the past three months) prompt us to raise our multiple to 1.3 times FY27E P/ABV (from 1 time). So, we upgrade MGFL to Accumulate from Reduce," Elara said.

This brokerage has a target of Rs 250 on the stock.