Edelweiss recommended buy rating on Muthoot Finance with a target price of Rs 570 in its research report dated August 09, 2017.
Edelweiss' research report on Muthoot Finance
Muthoot Finance’s (Muthoot) Q1FY18 PAT jumped ~30% YoY to INR3.5bn, supported by: (i) funding cost benefit (down >150bps YoY and >50bps QoQ to 9.9%); and (ii) controlled opex—up mere ~2% YoY. However, growth continued to be modest—gold AUM up ~8% YoY and 2% QoQ to INR278bn—impacted by lower demand and sustained auctions (INR3.6bn). We believe better asset growth momentum is a critical driver of earnings growth. Non-gold businesses that currently contribute ~5% to earnings will be scaled-up to 9-10% by FY18. Given revenue tailwinds and controlled opex, we estimate Muthoot to post >18% earnings CAGR over FY17-19. Maintain ‘BUY’.
OutlookNotwithstanding weak traction, we expect AUM growth to pick up pace—>15% CAGR over FY17-19E—on stabilising gold prices, gap in AUM/gram (INR 1,827 versus incremental lending at INR1,950) and branch expansion. This, coupled with controlled costs, is estimated to drive >18% earnings CAGR. The stock is trading at 2.2x FY19E P/ABV for RoA/RoE of 5%/20%. We maintain ‘BUY/SO’ with TP of INR 570 (2.75x FY19E P/ABV).
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