"We expect that with management’s focus on recoveries and rising gold prices will augur well for the company and can expect a target price of Rs 530 plus by the end of FY19," says Akash Jain, Vice-president, Equity Research at Ajcon Global Services.
At current market price of Rs 442 (Face value: Rs 10), Muthoot Finance trades at a P/BV of 2.68 x. We are bullish on this company as it the largest gold financing player. In addition, factors like rising gold prices amidst rising tensions between US and Syria, stable regulatory environment, benign competition, 70-80 percent of their customers are repeat customers augurs well for Muthoot Finance business model.
The management plans to achiev eexpansion in AUM by expanding into new states like Haryana, Karnataka, Andhra Pradesh and Telangana. The company witnessed good set of numbers in Q3FY18 result.
Topline in Q3FY18 improved by 16.4 percent on Y-o-Y basis to touch Rs 1,566.7 crore. Its NII came at Rs 1,085 crore as against Rs 744 crore, which has improved by 45.8 percent Y-o-Y. PAT witnessed a strong Y-o-Y growth of 59.53 percent to touch Rs 463 crores.
The provisions for the quarter came at Rs 56.4crore as against Rs 3.9 crore Y-o-Y. Its capital adequacy ratio as on Q3FY18 end stood at 27.65 percent. NII witnessed a strong traction with Y-o-Y growth of 45.8 percent to touch Rs. 1,085 crores.
The company enjoys strong operative leverage as around 50 percent of the operating costs are fixed which boost RoA, ROE and ROCE as there would be efficiency on the capital employed in the business. Additionally, it has strong loan book with stable asset quality.
The company in the past has witnessed minimal write offs. Going forward, we expect that with management’s focus on recoveries and rising gold prices will augur well for the company. We can expect a target price of Rs 530 plus by the end of FY19.Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.