Manappuram Finance shares dropped sharply in morning trading on October 17 after the Reserve Bank of India ordered Asirvad Microfinance to stop loan disbursements.
Asirvad and three other nonbanking financial firms (NBFCs) were targeted by the central bank for material supervisory concerns regarding loan pricing policies.
Manappuram Finance shares traded at Rs 149.70 on Friday morning at 10:10.
Asirvad Microfinance sells off after RBI stops loans
The RBI has announced that it will take action against Asirvad Microfinance and Arohan Financial Service, DMI Finance and Navi Finserv. They have been ordered to cease loan sanctioning and disbursements.
The RBI has stated that these firms have engaged in excessive price practices which violates regulatory guidelines.
Asirvad Microfinance is a crucial arm of Manappuram Finance, which provides small loans to women with low incomes. It contributed 27% of the total revenue for the parent company in FY24.
After the RBI announcement, Manappuram Finance shares quickly went on a sell-off, as analysts raised concerns about potential earnings impacts and capital infusion requirements.
Brokerages have mixed opinions on the stock
Jefferies, an international brokerage firm, downgraded Manappuram from ‘buy’ to ‘hold’. They cited the possibility of lower earnings and Asirvad’s potential need to raise capital.
The firm said that if Asirvad’s net worth declines, Manappuram’s financial stability will be put under pressure.
Bank of America reiterated their ‘buy call’ but reduced its price target from Rs240 per share to Rs220, and adjusted earnings estimates lower by 3-6% due to slower growth at Asirvad.
The brokerage stated that “the stock has already derated by 25% in the last three month, which accounts for the growth weaknesses to a great extent.” They added that gold financing is still a bright spot.
Morgan Stanley took a more conservative stance. It downgraded Manappuram from ‘equal weight’ to ‘equal’, and cut its earnings forecast for FY26-27 by 30%.
The brokerage noted that the risks of slower loan growth, tighter lending practices, and increased provisioning could slow down any recovery.
JP Morgan revised its outlook for Manappuram’s bonds and warned that RBI’s intervention could impact the company’s borrowing costs as well as funding access.
CRISIL maintains an ‘AA+/Stable’ long-term rating for Asirvad Microfinance. However, analysts warn that further regulatory scrutiny may lead to a downgrade.
Manappuram is subject to repeated regulatory scrutiny
Manappuram Finance is not the only company that has been under pressure by the central bank.
The RBI advised Manappuram, and Muthoot Finance to adhere to the Income Tax Act limit of Rs20,000 on cash disbursements.
After identifying irregularities with loans secured by gold ornaments, the RBI ordered gold financiers in September to review their loan-issuance practices.
Analysts think that these regulations could have a negative impact on the growth and profitability of the gold finance industry.
Asirvad Microfinance vows corrective action
Asirvad Microfinance responded to the RBI directive by saying, “We appreciate the feedback provided to us by the RBI, and we have taken immediate action to notify our Board.”
“A meeting has been called to address concerns and corrective measures.”
Brokerages are divided over the future of Manappuram Finance, despite the RBI’s concern about operational stability.
Analysts believe that the current market valuations could be a good opportunity to buy, as gold financing is showing resilience. Investor sentiment is still fragile and it may be some time before the stock recovers amid regulatory uncertainty.
This article Why did Manappuram Finance share crash? This post may be updated as new information unfolds
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