Neutral Muthoot Finance; target of Rs 1130 : Motilal Oswal

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26 Aug, 2025 12:21

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MUTH’s 2QFY23 results were characterized by: a) muted gold loan growth of 3% YoY to INR565b (PY:547b); b) maturity of much higher interest rate gold loans (disbursed prior to the introduction of teaser rate gold loans), keeping the yield improvement muted; c) retirement of higher cost liabilities, aiding benign borrowing costs (CoB) in a rising rate environment, and d) lower reported operating expenses, translating into an inline PPoP . Standalone PAT declined ~13% YoY to ~INR8.7b (in-line), led by a 13% YoY decline in NII. Standalone yields (calc.) increased marginally ~8bp QoQ to 17.5%, while the CoB declined ~8bp QoQ, leading to a ~15bp/30bp sequential improvement in spreads and margins, respectively. Both the yield improvement and the margin recovery were below expectations.

We estimate standalone AUM CAGR of 7% over FY22-FY24, with spreads improving marginally to ~10%. We model an RoA/RoE of 4.9%/17%, respectively, in FY24. Given the lack of loan growth visibility and a structural change in Gold loan NBFC business models that we foresee, we expect limited upside catalysts for the stock. We reiterate our Neutral rating with a TP of INR1,130 (based on 1.9x FY24E P/BV).

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