CRISIL Research has assigned CRISIL IER fundamental grade of 3/5 to Manappuram Finance. The grade indicates that the company`s fundamentals are 'good' relative to other listed equity securities in India.

''Our fair value of the stock is Rs 28 a share. At the current market price of Rs 23 a share, our valuation grade is 4/5 indicating that the market price has upside from the current levels. The grades are not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument's future market price or its suitability for a particular investor,'' said CRISIL Research.

The assigned fundamental grade reflects that Manappuram Finance, the second-largest non-banking financial company (NBFC) providing loans against gold in terms of AUM, has been in consolidation mode since the regulatory changes started in 2012. The Reserve Bank of India (RBI) has been tightening operational norms of lending against gold, viz. introduction of loan to value (LTV) cap, limit of cash transaction and auction process. The latest regulations released by the RBI in January 2014, mandating 75% LTV cap, improve the competitive positioning of gold loan NBFCs against banks and unorganised players (compared to the tighter 60% LTV cap guideline issued by the RBI in September 2013).

CRISIL Research expects AUM growth to normalize at a three-year CAGR of 5% to Rs 114 billion in FY16. Cost-to-income ratio is expected to improve to 59% in FY16 from 64% in FY13 due to sweating of assets and rationalization of costs. About 8% of loans with above 75% LTV ratios remain outstanding, shortfall has been provided for. Credit cost as a percentage of AUM is likely to improve to 0.1% in FY16 from 0.7% in FY13. PAT is estimated to increase at a three-year CAGR of 23% of Rs 3.9 billion in FY16. Gross NPAs are estimated to improve to 0.5% in FY16 from 1.2% in FY13. Improvement in asset quality would also be supported by the company's collection process, which has been beefed up to mitigate the risk of higher NPAs.

Shares of the company gained Rs 0.1, or 0.44%, to trade at Rs 22.85. The total volume of shares traded was 170,344 at the BSE (Wednesday).