Why did Manappuram stock fall so sharply on 11 August?

Manappuram Finance stock fell sharply by nearly 11% on Wednesday after the profits of Manappuram were lower on sequential basis, although higher on a yoy basis. For the Jun-21 quarter, Manappuram reported PAT of Rs.437. While this was 19% higher on yoy basis, it was 8% lower on sequential basis, which was more due to the COVID 2.0 effect. However, the markets punished the stock quite harshly.

In addition, there was also the worry over the company missing profit estimates. For example, Manappuram reported lower than expected net interest income or NII for the Jun-21 quarter. The provisions for loan losses were also elevated at Rs.120 crore and that also raised the spectre of asset quality in the core gold loan business of Manappuram.

Ironically, its core bread and butter gold loan book AUM fell by 13% sequentially to Rs.16,500 crore with gold holdings falling 11% to 58.1 tonnage. The biggest challenge was the impact of the pandemic and the lockdown on the customer flows. The good thing is that the highly levered book of LTV above 80% is now down to just 6% of total assets, which makes the business model a lot more de-risked.