Buy Muthoot Finance; target of Rs 234: Motilal Oswal

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26 Aug, 2025 12:21

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Kerala-headquartered Muthoot Finance is a non-deposit taking NBFC and the flagship company of “The Muthoot Group”. Muthoot Finance has a long and established track record and has been in the lending against gold business for the last 70 years, whenh Mr M George Muthoot founded a gold loan business in 1939. Muthoot Finance is the largest gold financing NBFC in India, with AUM of INR234b as of FY15. MUTH’s gold loan portfolio comprises ~5.5m loan accounts in India, which are serviced through 4,245 branches across 26 states and union territories. Apart from the gold loan business, it provides money transfer services, white label ATMs, collection agency services and has recently ventured into affordable housing finance. It also operates three windmills in Tamil Nadu. However, its is concentrated in the South—~65% of the branches and 57% of the total loans concentrated in Kerala, Andhra Pradesh, Tamil Nadu and Karnataka.

Regulatory environment has turned favorable and business momentum is picking up. We expect +17% loan CAGR for the next 3 years. Also, given that 80% of MUTH’s operating costs are fixed in nature, rebound in business will lead to optimum utilization of existing infrastructure. RoEs bottomed out at 14.3% in FY15 from the peak of +51% in FY11; expect gradual improvement from here on in. Revival in business and improving return ratios make current valuation of 6.9x FY17E and 1x FY17E BV attractive. We initiate coverage with a Buy rating and a target price of INR234, whereby the stock would trade at 1.5x FY17E BV (a 44% upside).

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