Buy Muthoot Finance; target of Rs 2849: LKP Research

LKP Research's research report on Muthoot Finance

Muthoot Finance Limited (MFL) represents a classic “Zero to One” story in the Indian financial landscape—transforming gold-backed lending from an informal, fragmented practice into a structured, scalable and highly profitable business model. Unlike conventional lenders that compete in the crowded retail and corporate lending space, MFL has carved out a niche by institutionalizing the gold loan segment, leveraging its first-mover advantage, deep customer trust and an extensive distribution network. This has resulted the company to be a market leader in the gold loan business. Further, it’s rigorous asset quality management, underpinned by conservative collateral valuation and disciplined risk practices, ensures a high-quality loan book even at high LTV levels. The company has a consistent track record of maintaining healthy profitability over the years, even in unfavourable market conditions. Therefore, we expect the company to deliver ROA/ROE of 5.4%/21.4% for FY27E, driven by expanding reach, favourable funding conditions and growing preference toward gold finance amidst uncertain economic times.

Outlook

Hence, we initiate our coverage with a BUY rating on the stock, based on Sum-of-the-parts (SOTP) valuation with a target price of ₹2,849.