Muthoot Finance Ltd reported an operationally healthy March quarter, with a strong 41 per cent year-on-year (YoY) growth in gold loans. Profit for the Kochi-based NBFC grew 42.7 per cent YoY in Q4, led by robust loan growth, controlled increase in opex and sequential decline in provisions. Net interest margin (NIM), however, fell sequentially.
While gold prices had a major impact on gold asset under management (AUM) growth, stock analysts noted gold tonnage and client accounts also grew 10.6 per cent YoY and 16.8 per cent YoY, respectively.
Nirmal Bang Institutional Equities maintained its ‘Buy’ rating on Muthoot Finance with a revised target price of Rs 2,693 against Rs 2,680 earlier, saying its target multiple for the standalone business is at a 13.3 per cent premium to the past 5-year average P/ABV multiple of 2.65.
MOFSL said Muthoot Finance delivered a healthy operational performance, driven by strong gold loan growth, supported by an increase in gold tonnage and decent customer additions.
“However, margins declined sequentially, primarily due to a rise in the cost of borrowings but without any significant pressure on yields. Asset quality improved during the quarter, driven by gold auctions, which led to a reduction in credit costs,” it said.
With a favorable demand outlook for gold loans driven by reduced competition from banks and limited availability of unsecured credit, the NBFC is well-positioned to maintain its healthy loan growth momentum, MOFSL said.
That said, “Until clarity emerges from the final gold lending guidelines, the outlook on gold loan growth will remain clouded, which will remain a near-term overhang on Muthoot’s stock price and valuations,” it said while suggesting a target of Rs 2,400.
Given Muthoot Finance’s consistent performance and firm gold prices, Nuvama retained ‘Buy’ on the stock.
“We are increasing target to Rs 2,625/3.1x BV FY26E (from Rs 2,550). The management indicated NBFCs have suggested changes in draft RBI guidelines on LTV, which will benefit lenders and borrowers,” it said.
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