Neutral Muthoot Finance; target of Rs 1290: Motilal Oswal

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26 Aug, 2025 12:21

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Muthoot Finance (MUTH)’s 1QFY24 performance was characterized by: 1) healthy gold loan growth at ~7% QoQ to reach ~INR660b, 2) ~70bp QoQ contraction in NIM; 3) higher ECL provisioning due to rise in Stage 2 and Stage 3; and 4) a moderation in cost-to-income ratio to ~29% (PY: ~35%) primarily owing to higher NII and lower advertisement & publicity expenses. Standalone PAT grew ~22% YoY to ~INR9.75b (5% miss). Net total income grew 25% YoY to ~INR19.6b while PPoP rose 37% YoY to INR14b (in line). Healthy gold loan growth was supported by: a) higher gold prices allowing an increase in LTV to ~68% (PQ: ~63%), b) gold tonnage growth of ~1% QoQ and increase in customer base of ~2% QoQ. MUTH reported a ~55bp QoQ decline in yields and ~40bp increase in CoB resulting in a ~1pp decline in spreads. Management guided that it would endeavor to maintain spreads at current levels of ~10%.

With limited upside catalysts for the stock, we maintain our Neutral rating with a TP of INR1,290 (based on 1.8x Mar’25E P/BV).

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