Buy Muthoot Finance; target of Rs 1750 : Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's research report on Muthoot Finance

Muthoot Finance ('MUTH') is our top pick for CY22 in the NBFC Lending space. Our investment idea is premised on our thesis of a structural opportunity in Gold lending as the market pie expands with customers evolving, taboo around Gold loans fading away, and apprehensions regarding Gold loans addressed through customer education. In this report, we list MUTH's competitive strengths vis-à-vis its peers and some of the challengers like Fintech Gold loan NBFCs. MUTH is well placed to build on its competitive heft and continues to create strong value for its stakeholders. Key investment thesis for Gold Finance is the 13%-15% CAGR in Gold loans over the next five years, with MUTH best positioned to deliver across economic cycles. Around 55% of its Gold loan portfolio has a ticket size of over INR100k, which leads to higher stickiness and lesser churn feeding into Gold loan growth. The management has built in adequate safeguards through appropriate combinations of tenure and LTV (average Gold loan tenure is in the six-to-nine months range), which protects it against any significant volatility in gold prices. Over the last decade, MUTH has delivered average credit costs of 40bp. We expect credit costs of 25-30bp over the next two years. Given the kind of RoE that MUTH is able to churn out (relative to loan growth), it is able to generate surplus cash, which can be deployed for diversification into non-Gold product segments. We expect the proportion of non-Gold businesses to improve to 14-15% (v/s 10% at present) over the next three years. Over the past five years, MUTH has exhibited an improvement in efficiency, with AUM per branch rising to ~INR110m in FY21 from ~INR60m in FY16. This traction in operating efficiency has led to higher growth in revenue (relative to AUM growth). We model in 15% PAT CAGR over FY22-24E and a RoA/RoE of 6%/22% in FY24E.

Outlook

The company appears strongly positioned to deliver standalone RoA/RoE of ~6%/22% over the medium term. MUTH is our top pick among NBFCs, with a TP of INR1,750 (2.7x FY24E standalone BVPS) and a potential upside of ~26%.

More Info

At 11:56 hrs Muthoot Finance was quoting at Rs 1,385.45, down Rs 39.00, or 2.74 percent.

It has touched an intraday high of Rs 1,421.00 and an intraday low of Rs 1,380.65.

It was trading with volumes of 19,390 shares, compared to its thirty day average of 30,159 shares, a decrease of -35.71 percent.

In the previous trading session, the share closed up 2.59 percent or Rs 35.90 at Rs 1,424.45.

The share touched its 52-week high Rs 1,722.55 and 52-week low Rs 1,120.45 on 15 November, 2021 and 22 April, 2021, respectively.

Currently, it is trading 19.57 percent below its 52-week high and 23.65 percent above its 52-week low.

Market capitalisation stands at Rs 55,604.28 crore.

For all recommendations report, click here

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