Neutral Muthoot Finance; target of Rs 1140: Motilal Oswal

Motilal Oswal's research report on Muthoot Finance

MUTH’s 3QFY23 results were characterized by: 1) muted gold loan growth of 5% YoY to INR568b (PY: INR542b); 2) an ~85bp QoQ improvement in reported yields aiding a ~100bp QoQ expansion in NIM; 3) lower interest expenses because of only a ~20bp QoQ increase in CoF resulting in a sequential earnings recovery; and 4) an increase in the contribution of nongold subsidiaries in consolidated AUM to 12% (PY: 10%). 3QFY23 standalone PAT declined ~12% YoY but grew 8% QoQ to ~INR9b (7% beat), led by 10% QoQ growth in NII. Opex grew ~8% QoQ to INR4.9b (in line), while PPOP rose ~10% QoQ (down 14% YoY) to ~INR12.6b (11% beat) during the quarter.

Outlook

We estimate a standalone AUM CAGR of ~4% over FY23-FY25, with spreads improving marginally to ~9.7%. We model RoA/RoE of 5%/16% in FY25. Given the lack of gold loan growth visibility and an anticipated structural change in gold loan NBFCs’ business models, we expect limited upside catalysts for the stock. Maintain our Neutral rating with a TP of INR1,140 (based on 1.8x Sep’24E P/BV).