Muthoot Finance reported a marginal loan book decline despite a sharp rally in gold prices, likely due to funding challenges.
Muthoot Finance share price slumped 5.6 per cent to Rs 1,185.40 apiece on BSE, a day after the company reported a mixed set of numbers for the April-June quarter. The company reported a 52 per cent increase in its first quarter consolidated net profit at Rs 858 crore as compared to Rs 563 crore in the corresponding quarter of the preceding fiscal. Sequentially, loan assets decreased by Rs 315 crore on account of closure of branches during April due to nationwide lockdown in the wake of Covid-19 pandemic. “Muthoot Finance reported a marginal loan book decline despite a sharp rally in gold prices, likely due to funding challenges. Even as we expect growth to catch up over the next nine months, we find Muthoot’s valuations overheated post the sharp stock rerating, following the rally in gold prices,” Kotak Institutional Equities said in a report.
The brokerage firm has downgraded the stock to reduce from add earlier. Around 10.45 AM, Muthoot Finance shares were trading 4.06 per cent lower at Rs 1,206 apiece on BSE, as compared to a 0.71 per cent fall in the benchmark S&P BSE Sensex. The stock had hit a 52-week high of Rs 1,405 apiece on August 28. “Muthoot Finance reported a mixed set of numbers for Q1FY21. Near term risk for Muthoot Finance are a sudden decline in the gold price and increased competition from banks. RBI has recently increased LTV on gold loans to 90 per cent for banks. We expect the stock price to consolidate, given the recent rally, Muthoot Finance now trades at a higher range of valuation,” said Jaikishan Parmar, Sr. Equity Research Analyst, Angel Broking Ltd.
While AUM growth took a backseat in the first quarter, research and brokerage firm Motilal Oswal Financial Services believes this is a one-off given the muted disbursements in Apr-May’20. “Demand for gold loans picked up in July-Aug’20, and we expect it to sustain given the tough economic environment,” it added. The brokerage firm said that while Muthoot Finance’s subsidiaries have witnessed improving collection efficiency, it remains cautious on the asset quality outlook.
Analysts at Antique Stock Broking suggested that the growth saw a temporary blip on account of closure of branches due to Co-VID and lost loan assets worth Rs 320 crore. The brokerage firm observed that near term risk includes a sudden dip in gold prices and the inability of branches to handle customers in the wake of COVID-19. “The stock still provides room for some upside on improved micro and macro dynamics of the business. Maintain buy,” it said.
(The stock recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)