Motilal Oswal's research report on Muthoot Finance
MUTH’s 4QFY23 performance was characterized by: 1) gold loan growth of ~9% QoQ to ~INR619b, indicating early green-shoots of demand revival; 2) a ~50bp QoQ expansion in NIM; 3) higher ECL provisioning due to slippages from Stage 2 to Stage 3; and 4) a higher cost-to-income ratio of ~33% (PY: ~31%) primarily because of higher employee expenses. 4QFY23 standalone PAT declined ~6% YoY to ~INR9b (in line) despite ~9% YoY growth in NII. PPoP rose 6% YoY to INR12.9b (in line). FY23 PAT declined 12% YoY to ~INR34.7b. The management acknowledged that in addition to higher gold prices, strong sequential growth in gold loans was supported by 1) demand revival due to improvement in economic activity, and 2) slightly lower competitive intensity from banks. Considering the current demand momentum, the company has guided for over 15% growth in gold loans in FY24. Notably, MUTH was able to achieve healthy gold loan growth without a trade-off in NIM/spreads, which was increasingly pronounced in the prior two quarters. However, we still do not see strong signs of an organic improvement in gold loan demand, even as banks remain aggressive in this segment.
We estimate a standalone AUM CAGR of ~9% over FY23-FY25, with spreads remaining stable at ~9.4%. We model RoA/RoE of 5.4%/17% in FY25. Despite expectations of higher gold prices aiding sectoral gold loan growth, we believe gold-NBFCs like MUTH will see little benefit given an aggressive competitive landscape. With limited upside catalysts for the stock, we maintain our Neutral rating with a TP of INR1,125 (based on 1.6x Mar’25E P/BV).
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