Neutral Muthoot Finance; target of Rs 1130 : Motilal Oswal

Motilal Oswal's research report on Muthoot Finance

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).

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Muthoot Finance - 14 -11-2022 - moti