Buy Muthoot Finance; target of Rs 1900: Motilal Oswal

HDFC Securities research report's outlook and valuations:  "The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar."

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26 Aug, 2025 12:21

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PAT (in line) grew by 11% YoY and 2% QoQ to INR9.94b. Despite higher-than-estimated provisions, lower-than-estimated interest expenses (driven by lower CoB), and benefits of lower operating expenses led to an in line performance. It posted an OPEX beat of 6% - OPEX declined by 2% YoY, but grew 10% QoQ to INR4.4b. The cost ratio declined by 80bp YoY to 3.3%. PPOP (3% beat) grew by 17% YoY and 6% QoQ to INR14.14b. Gross Stage 3 increased by 63bp QoQ to 1.85% in 2QFY22.

We expect MUTH to deliver standalone AUM growth of ~17%/14% in FY22E/FY23E. RoA/RoE is likely to remain robust (6%/23%) over the medium term. We cut our FY22E/FY23E EPS estimate by ~2%/1% to factor in slightly higher credit costs. We reiterate our BUY rating with a TP of INR1,900/share (3.1x Sep'23E BVPS).

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