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Muthoot Finance share price down 5% after brokerages flag rich valuation

The company reported a 52 percent jump in its consolidated net profit at Rs 858 crore in the June of the current fiscal year.

August 20, 2020 / 09:46 AM IST
 
 
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The share price of Muthoot Finance plunged over 5 percent in early trade on BSE on August 20, a day after the company released its June quarter scorecard.

The company reported a 52 percent jump in its consolidated net profit at Rs 858 crore in the first quarter of the current fiscal year after which the stock closed a percent higher.

Read more: Muthoot Finance Q1 net profit jumps 52% to Rs 858 crore

However, the stock was witnessing profit-booking on August 20 as brokerages expressed concern over the high valuation of the stock.

"The company's consolidated AUM grew 16 percent YoY and declined 1 percent QoQ, which is lower than expected. PAT increased, largely supported by controlled opex. The near-term risk for Muthoot is a sudden decline in the gold price and increased competition from banks. The RBI has recently increased LTV on gold loan to 90 percent for banks. We expect a stock price to consolidate. Given the recent rally, Muthoot Finance now trades a higher range of valuation,” said Jaikishan Parmar, Sr. Equity Research Analyst, Angel Broking.

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Brokerage firm Motilal Oswal Financial Services has a 'neutral' view on the stock with a target price of Rs 1,300.

"While AUM growth took a backseat in Q1FY21, we believe this is a one-off given the muted disbursements in Apr-May’20," Motilal said.

"Demand for gold loans picked up in Jul-Aug’20, and we expect it to sustain given the tough economic environment. Over the past year, the company has increased liquidity on the balance sheet from 3 percent of loans to 20 percent of loans, which is comforting. However, this is likely to be a drag on margins going ahead. While Muthoot’s subsidiaries have witnessed improving collection efficiency, we remain cautious about the asset quality outlook," Motilal added.

Kotak Institutional Equities has downgraded the stock to 'reduce', with a target price of Rs 1,100.

"Even as we expect growth to catch up over the next nine months, we find Muthoot’s valuations overheated post the sharp stock rerating, following the rally in gold prices. We downgrade the stock to 'reduce' from 'add' with a fair value of Rs 1,100," Kotak said.

The stock was trading 3.20 percent lower at Rs 1,215.85 on BSE at 0935 hours.

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first published: Aug 20, 2020 09:46 am
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