We initiate coverage on Muthoot Finance (MUTH), with a BUY rating as it is a 1) market leader (18% market share) and proxy play on gold financing market in India 2) carries robust capital (Tier I of 24%) 3) maintains low leverage(4x) and 4) comes at reasonable valuations at 2.2xPBV (FY23E). We expect MUTH to maintain market leadership in gold lending underpinned by pricing power, improved productivity and insulation from underlying collateral price fluctuations. A low risk (0.3% credit costs/ 2% NPA), high return business (RoA/RoE: 6%/22%), MUTH is expected to clock healthy growth momentum (19% CAGR) over FY22-23 defying pandemic challenges.
OutlookWe recommend BUY based on SoTP metrics assigning PBV multiple of 2.6x to core book at Rs1,330 value per share and subsidiaries at Rs34 per share arriving at price target of Rs 1,364.
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