International rating agency S&P has upgraded the long-term issuer credit rating of Manappuram Finance Limited from “B+” to “BB-” with a stable outlook. The rating agency also reaffirmed the ‘B’ short-term issuer credit rating on the company.
The company’s gold-based lending business has proved to be an effective counterbalance to the weakness in India’s microfinance segment, according to ratings rationale released by S&P. Manappuram Finance is expected to continue to outperform its non-gold NBFC peers in terms of asset quality and profitability over the next 12 months, which will be reflected in the company’s low credit cost, above average profitability and strong capitalisation.
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VP Nandakumar, MD and CEO, Manappuram Finance, said, “The upgrade reflects the overall recovery in the economy and better growth prospects. With the unorganized sector also back on its feet, we expect better growth in Gold Loan and Micro Finance as well as our other business verticals. “
high stress potential
S&P also noted that Manappuram’s gold-based lending model with a tenor of three months allows it to identify asset quality stress early. However, tensions will remain high in Manappuram’s non-gold portfolio, especially in the microfinance business. Manappuram’s funding profile is also improving with the shift towards long-term debt, although material risks to short-term wholesale funding remain.
The agency expects Manappuram’s risk-adjusted capital ratio to be above 30 per cent over the next 12 months, the highest among its rated peers. The core income is expected to be more than 5 percent of its average managed assets during this period.
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