Neutral Muthoot Finance; target of Rs 1815: Motilal Oswal

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26 Aug, 2025 12:21

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Muthoot Finance (MUTH)’s 2QFY25 performance was characterized by: 1) strong gold loan growth of ~28% YoY to ~INR862b without the associated trade-off in margins; 2) sequentially stable NIM at ~11.8%; and 3) an increase in gold tonnage by ~3% QoQ to 199 tonnes. MUTH’s 2QFY25 PAT grew 26% YoY to ~INR12.5b (in line). Its 1HFY25 PAT grew ~18% YoY to ~INR23.3b, and we expect 2HFY25 PAT to grow ~35% YoY. Reported RoA/RoE in 2QFY25 was healthy at 5.7%/20.0%. Net total income grew 34% YoY to ~INR25.8b. Opex rose ~15% YoY to INR6.6b, resulting in a cost-to-income ratio of ~26% (PY: 30%). PPOP rose 43% YoY to ~INR19.1b (~7% beat). Provisions in 2QFY25 stood at ~INR2.1b and translated into annualized credit costs of ~95bp (PY: 10bp/PQ: 110bp). Gold Loan growth was supported by growth in gold tonnage (up 3% QoQ), along with an increase in the customer base by (up 4% QoQ) to ~6.14m. LTV was largely stable QoQ at ~63%.

However, we believe that the positives are already factored in its valuations, and we anticipate limited upside catalysts for the stock. We reiterate our Neutral rating with a revised TP of INR1,815 (based on 2x Sep’26E P/BV).

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