(Reuters) – Manappuram Finance’s shares slumped 16% on Friday, their biggest decline since March 2020, after the Indian central bank’s lending restrictions on the company’s unit triggered rating downgrades due to concerns over a potential hit to earnings.
The non-bank lender’s shares fell as much as 18% to 145.42 rupees, their lowest in 10 months, before paring some losses.
The Reserve Bank of India (RBI) on Thursday barred four non-bank finance companies (NBFCs), including Manappuram’s unit Asirvad Micro Finance, from sanctioning and disbursing loans due to “usurious” pricing and for charging a significant mark-up over their funding costs.
Asirvad contributes about 27% to Manappuram’s consolidated assets under management (AUM), according to two brokerage estimates.
Brokerages including Morgan Stanley, Jefferies and Motilal Oswal downgraded their ratings on the stock and cut target prices after the RBI’s move.
Manappuram, could see a rise in funding costs and may have to support Asirvad with funding, Morgan Stanley said in a note, downgrading the stock to “equal-weight” from “over-weight”. It reduced its target price by 35% to 170 rupees.
“It (Manappuram) could also face loan growth moderation, tighter credit practices, and higher provisioning to give comfort to all stakeholders,” Morgan Stanley analysts said.
Jefferies downgraded the stock to “hold” from “buy” and cut its target price by 38% to 167 rupees, saying a potential rise in defaults at Asirvad could hurt Manappuram’s profit.
Asirvad is expected to see a 25% decline in AUM in 2025, Motilal Oswal said, downgrading the stock to “neutral” from “buy”.
Manappuram shares are down 12% so far this year, compared to a 32% rise in rival Muthoot Finance.
(Reporting by Dimpal Gulwani and Siddhi Nayak; Editing by Sonia Cheema)
