International rating agency S&P upgraded the long-term issuer credit rating of (MAFIL) from “B+” to “BB-” with a stable outlook. The rating agency also affirmed the ‘B’ short-term issuer credit rating on the company.
According to the rating rationale released by S&P, the gold-based lending business of the company has proved to be an effective counterbalance to the weakness in India’s microfinance segment. Manappuram Finance is expected to continue to outperform its non-gold NBFC peers over the next 12 months in terms of asset quality and profitability, which would be reflected in the company’s lower credit costs, above-average profitability and strong capitalisation.
In a media release, V.P. Nandakumar, MD & CEO, Manappuram Finance said, “The upgrade reflects the overall recovery in the economy and better prospects for growth. With the unorganized sector also getting back on its feet, we expect improved growth in gold loans, microfinance, as well as, our other business verticals.”
S&P also noted that Manappuram’s gold-based lending model with a three-month tenor allows it to recognise asset quality stress early. However, it said stress will likely remain high in Manappuram’s non-gold portfolio, especially in the microfinance business. Manappuram’s funding profile is also improving with a shift towards longer tenor debt though material exposure to short-term wholesale funding remains.
The agency expects Manappuram’s risk-adjusted capital ratio to stay above 30 per cent over the next 12 months, one of the highest among its rated peers. Core earnings are likely to remain at more than 5 per cent of its average managed assets during this period.