Explained: Why Manappuram Finance shares crashed 16% today

At around 10:30 am shares of Manappuram Finance were down 16.15% to Rs 148.75 on the Bombay Stock Exchange (BSE).

In Short

• Manappuram shares plunge 16% after multiple downgrades by brokerages
• RBI takes action Manappuram's subsidiary Asirvad Micro Finance
• CLSA slashes Manappuram target; 25% AUM tied to Asirvad

Shares of Manappuram Finance Ltd nosedived over 16% on Friday following multiple downgrades and price target cuts by several brokerages. At around 10:30 am shares of the company were down 16.15% to Rs 148.75 on the Bombay Stock Exchange (BSE).

The sharp fall in its share price came after the Reserve Bank of India (RBI) directed its microfinance subsidiary, Asirvad Micro Finance, to halt the sanctioning and disbursal of loans.

The central bank's action wasn’t limited to Asirvad alone; three other Non-Banking Financial Companies (NBFCs) were also flagged for non-compliance in assessing household incomes and repayment obligations tied to their microfinance loans.

BROKERAGES REACT

Brokerage houses have responded swiftly to the RBI’s move. CLSA, while maintaining its "outperform" rating on Manappuram, slashed its price target from Rs 240 to Rs 200.

In its note, CLSA pointed out that Asirvad accounts for 25% of Manappuram’s overall Assets Under Management (AUM), leading them to cut profitability estimates and lower the valuation multiple for Manappuram.

Morgan Stanley took a more cautious stance, downgrading the stock from "Overweight" to "Equalweight" and cutting its price target to Rs 170.

The firm expressed concerns that the RBI's embargo on Asirvad could significantly impact profits for an extended period. Morgan Stanley has also trimmed Manappuram's consolidated earnings forecasts by 20% for FY2025 and by a steeper 30% for FY2026 and FY2027.

Despite these cuts, Morgan Stanley noted that the standalone valuations of Manappuram remain attractive, but recovery in investor sentiment may take time.

Another downgrade came from Jefferies, which lowered its rating on the stock to "hold" and reduced its price target to Rs 167. Jefferies highlighted concerns that Manappuram may be required to inject capital into Asirvad if defaults rise, which could negatively affect the company's earnings.

Jefferies also reduced its earnings-per-share (EPS) estimates for FY2025 to FY2027 by 11% to 19%, though it added that the downside risk should be limited, given the stock’s cheap valuations—currently at 0.9 times FY2026 price-to-book value.

While the stock has faced a brutal 15% decline today, with shares trading at Rs 150.73, some analysts remain optimistic. Out of the 18 brokerages tracking Manappuram, 12 still maintain a "buy" rating, four recommend "hold," and two have moved to a "sell."

So far in 2024, Manappuram’s stock has remained flat, and the latest drop has deepened its correction to roughly 35% from its peak of Rs 230 earlier this year.