Manappuram Finance crashes 13.5% on Merrill Lynch downgrade

India's largest gold loan financing company Manappuram General Finance (MGFL) crashed 13.5 percent on Wednesday after foreign research house Bank of America Merrill Lynch (BofAML) downgraded the stock.

The stock had fallen 20 percent on Tuesday after the company selectively shared information about large loan losses with some investors before an analyst call.

Later the company issued a statement to stock exchange saying, "We expect an under-recovery of revenue on certain gold loan portfolios due to correction in the gold price. This may result in reduction in profit numbers for the fourth quarter ending March 31, 2013."

On Wednesday BofAML cut MGFL rating by 2 notches to an underperform against buy rating and reduced its price target to Rs 20 from Rs 48. According to the research firm, a 30 percent EPS cut for both FY13/14 is due to higher than estimated under recoveries from auctions in 4Q.

Secondly, BofAML believes their guidance has been inconsistent and the risk to future earnings is high, as company still needs to auction Rs 900-1,000 crore of gold loans in 1QFY14, which can be impacted by gold prices.

BofAML expects MGFL to report a loss in fourth quarter of FY13 against earlier estimate of a profit.

Meanwhile, Religare recommends holding the stock. The broking firm has cut their price target to Rs 30 and has pared down its FY14 earnings estimates by 18 percent. 

At 10:18 hours IST, shares plunged 12.27 percent to Rs 24.30 on Bombay Stock Exchange.

In the previous trading session, the share tanked 20 percent to Rs 27.70.