Manappuram Finance Drops 3.4% to ₹308 Despite CLSA Upgrade and 77% Profit Surge

Shares of Manappuram Finance tumbled 3.4% to ₹308.9 on Friday, slipping into negative territory for the year.

Brisk selling wiped out early optimism. The drop came even after global brokerage CLSA upgraded the non-banking financial company to "outperform" from "hold" and lifted its price target to ₹370 from ₹350, signaling a 15.7% upside. Traders shrugged off the upgrade. Instead, market participants seized on a deterioration in underlying asset quality, dumping the stock as credit cost worries took center stage.

Asset Quality Flashes Red as Stage 2 Loans Spike

Gold Stage 2 loans leaped to 5% of total advances during the quarter, up sharply from 0.95% in the previous three-month period. That sudden spike rattled institutional desks.

Sensing risk, the lender ramped up defenses. Standalone loan-loss provisions escalated 39% sequentially, absorbing capital to cushion potential slippages. While CLSA noted that the ballooning Stage 2 bucket is unlikely to produce hard end-losses, equity markets took no chances. Management told investors that the delinquency pool will normalize over the next one to two quarters. Until collections prove that thesis, market desks remain on edge.

Market Context: Non-banking lenders managing gold collaterals have historically operated with minimal credit haircuts. When early-stage stress indicators expand fivefold within a single quarter, bourses routinely re-rate valuation multiples downwards until cash recoveries materialize.

Standalone Earnings Beat and Asirvad Turnaround

Behind the credit noise, the operating engine fired on all cylinders. Standalone net profit surged 76.9% to ₹665 crore compared to ₹376 crore in the year-ago period, marking a 20.5% sequential jump from ₹552.5 crore.

Net interest income jumped 43.1% to ₹1,112 crore, up 13.5% from ₹1,449 crore reported in the prior quarter. Pre-provision operating profit exceeded internal street benchmarks by 9%, powered by widening loan spreads. Microfinance subsidiary Asirvad Microfinance also pivoted back into the black, wiping away subsidiary losses that had weighed on consolidated performance throughout earlier quarters.

Tonnage Growth Offsets Margin Pressures

Gold loan assets under management climbed to ₹58,097 crore, leaping 92% over the previous year and 6.3% sequentially. Tonnage expanded 4% quarter-on-quarter under disciplined loan-to-value limits. Over the first half of financial year 2027, portfolio yields strengthened 90 basis points without derailing disbursement momentum.

CLSA upgraded its financial year 2027 to 2029 profit forecasts by 1% to 6%, penciling in higher pre-provision margins while factoring in another potential repo rate hike by the Reserve Bank of India. Operational expenditures remained in check, with the expense ratio expected to trend lower through the second half.

Caution remains warranted on the liability side. Management warned that corporate borrowing costs could drift upward by 25 to 30 basis points in the coming months. Still, leadership maintained aggressive full-year guidance, projecting 30% annual growth in the gold loan franchise, net yields anchored between 17.5% and 18.5%, and return on assets holding steady between 3.5% and 4%.

Wall Street sentiment remains divided between operating muscle and credit drag. Of the 17 brokerages tracking Manappuram Finance, nine carry "buy" recommendations, seven advise holding the stock, and one maintains an outright "sell". All eyes now turn to third-quarter recovery figures, where management must demonstrate whether that 5% Stage 2 asset bubble dissolves back to standard book levels.