Muthoot Finance slides 7% despite record profit: What’s fuelling the sell-off

Motilal Oswal set a revised target price of Rs 3,720. This implies an upside potential of around 5% from the current market price. 

Let’s take a look at the brokerage take on this stock –

Muthoot Finance clocks record profit growth in Q4

As per the Motilal Oswal report, Muthoot Finance reported a standalone Profit After Tax of around Rs 3,090 crore during the Q4FY6, a 105% rise compared to the same period last year.

The company’s net profit also came in ahead of market expectations. This is supported by strong loan growth, higher lending yields and treasury-related income.

Motilal Oswal stated, “Q4FY26 PAT grew 105% YoY and 16% QoQ to Rs 3,090 crore.”

According to the brokerage report, gold loan assets under management rose nearly 50% year-on-year to around Rs 1.54 lakh crore during the quarter.

The brokerage highlighted that the company also benefited from higher lending rates across select loan schemes.

The report added, “Spread expansion of ~60bp QoQ to 12.5% as yields rose.”

Apart from core lending income, the company also received one-time interest income from Asset Reconstruction Company recoveries and auction-related proceeds during the quarter.

Rising gold prices continue to support Muthoot Finance growth

Motilal Oswal highlighted that one of the biggest tailwinds for Muthoot Finance is the sharp increase in gold prices and demand for secured gold loans.

The brokerage believes tighter availability of unsecured loans in the market has also pushed more borrowers towards gold-backed lending products.

As per the brokerage report, Muthoot Finance is targeting around 15% gold loan growth in FY27.

The report noted, “With a favorable demand outlook for gold loans, the company is well-positioned to maintain its healthy loan growth momentum.”

Customer base declines despite higher loan growth

However, the company saw pressure in customer additions and gold tonnage during the quarter.

According to the brokerage report, gold tonnage declined around 4% sequentially to 196 tonnes, while the customer base slipped nearly 2% quarter-on-quarter to around 64.1 lakh customers.

Management highlighted that the company lost customers in the smaller-ticket loan category during the year.

However, this weakness was partly offset by stronger customer additions in higher-ticket loan categories ranging between Rs 50,000 and Rs 2 lakh.

Muthoot Finance: RBI rule change impacts asset quality

One of the key concerns highlighted in the quarter was deterioration in asset quality due to a regulatory change introduced by the Reserve Bank of India.

Motilal Oswal noted, “Asset quality deteriorates, driven by RBI-directed borrower-level classification.”

This change resulted in a rise in Gross Stage-3 assets and higher provisioning requirements during the quarter.

What investors need to watch

According to the brokerage report, several highly rated Non-Banking Financial Companies are aggressively entering the gold loan segment, increasing competitive intensity.

The report added, “We see risks of market share losses for Muthoot Finance given the high competitive intensity.”

Motilal Oswal currently values the stock at around 2.5 times estimated March 2028 book value and has maintained its ‘Neutral’ stance despite raising earnings estimates for FY27-28.

Disclaimer: This analysis contains specific stock valuations and brokerage ratings which should not be construed as investment advice or a recommendation to buy, sell, or hold any security. Investors are advised to consult a SEBI-registered investment advisor to understand their risk profile before making any financial decisions based on market targets or earnings estimates. Market investments are subject to volatility and regulatory shifts, and past performance is not a definitive indicator of future results.

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