Shares of Manappuram Finance Ltd and Muthoot Finance Ltd have climbed up to 52 per cent in the past six months and ICICI Securities believes the prevailing valuations are factoring in continuity in the ongoing positive cycle for gold loan NBFCs.
The domestic brokerage has downgraded Manappuram Finance to ‘Hold’ from ‘Buy’ with an unchanged target of Rs 260, saying the implied gold business multiple is higher, considering the decline in MFI segment. For Muthoot Finance, it maintained ‘ADD’ with revised target of Rs 2,670, suggesting higher gold loan growth and higher multiple.
“Over the years, gold loan NBFCs (Muthoot/Manappuram) have gone through several cycles which have been well documented. However, recent times may be characterised by relative stability of yields, robust growth aided by strong gold prices and perhaps additional tailwinds from comparative restrictions in unsecured lending,” ICICI Securities said.
The traction is further supported by data of increasing tonnage and number of accounts, the brokerage said.
“While investors scout for structural levers among these, recent regulations on gold loan lay down uniform guidelines which may help in alignment of business practices. We, however, highlight that decline in gold prices does pose a risk, considering the elevated multiples. Maintain ADD on Muthoot but downgrade Manappuram to HOLD (from Buy),” ICICI Securities said.
Muthoot Finance | Target price: Rs 2,670
For Muthoot Finance, ICICI Securities is factoring in compounded annual growth rate (CAGR) of 16.2 per cent against 13 per cent CAGRin standalone gold AUM earlier. It suggested a 7.5 per cent growth in MFI (Belstar) AUM for FY25-27 period.
“Consolidated RoE estimate stands at average 22 per cent for FY26-27E and our valuation is based on 2.5 times P/BV for standalone and 1.1 times for remaining businesses. This turns to 2.3 times FY27E P/BV on a consolidated basis vs its historical average of 2 times and peak of 3.3 times in FY22,” ICICI Securities said while suggesting a target price of Rs 2,670 on the Muthoot Finance stock.
Manappuram Finance | Target price: Rs 260
For Manappuram Finance, ICICI Securities has factored in CAGR of 14 per cent in standalone gold AUM and minus 3.6 per cent in MFI (Asirvad) AUM. Consolidated RoE estimate stands at average 16.7 per cent for FY25-27.
“Our valuation is based on 1.5 times P/BV for standalone and 1 time for remaining businesses. This turns to 1.4 times FY27E P/BV on a consolidated basis (at historical averages of 1.4 times). We have downgraded the stock from Buy to Hold, as current valuation captures possible growth (stock is up 39 per cent in CY25),” ICICI Securities said.
The possible rerating on Manappuram Finance post capital infusion from private equity may take time depending on the approvals, it added.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
