Retain ‘buy’ on Muthoot Finance with higher TP of Rs 1,160

By: |
Published: June 19, 2020 9:46 AM

Muthoot’s outlook supported by a gold price tailwind promises accelerated earnings momentum. We see a unique medium term combination of strong growth and an impressive RoE of 28%.

Muthoot finance, investment in muthoot finance, where should I invest, expert advise on investments, should I invest in muthoot finance, analyst cornerWe expect core NIM to expand by ~50bps over the next two years.

In a sharp contrast to its NBFC peers, Muthoot Finance reported a better-than-expected Q4FY20 owing to strong growth momentum. The key highlight is robust AUM growth of >20% y-o-y/8% q-o-q on the back of gold price tailwinds — a trend expected to sustain. This coupled with a superior NIM (albeit normalised vis-a-vis Q3FY20 following lower penal collections) supported strong revenue traction. Asset quality remains strong with gross-stage 3 assets falling to sub-2.2% (2.5% in Q3FY20). Other businesses — home finance, Belstar and insurance broking — have been understandably held back by adverse circumstances.

We believe the current environment offers a unique growth and asset tailwind to gold financing, forcing our hand to raise FY21/FY22E EPS by 16%/26% — a rarity in these times. We are also raising the target to 2.5x consolidated FY22E BVPS (from 2x), thereby leading to a revised TP of Rs 1,160 (earlier Rs 883). Frankly, our FY22E RoE of28% and the low asset quality risk could have justified an even higher multiple, but we recognise that gold financing is after all a mature credit category. Maintain ‘buy’.

AUM growth of >20% y-o-y/8% q-oq stands out (accretion of >Rs 3,000 crore being the highest in many quarters). Gold price tailwind helped, reflected in >16% y-o-y/6% q-o-q rise inAUM/g. We are raising FY21/FY22 loan growth estimates from 16%/15% to 23%/21%, given gold tailwinds. Despite lower penal interest and a negative carry of higher liquidity, >15% margins underscore pricing power. We expect core NIM to expand by ~50bps over the next two years.

Muthoot’s outlook supported by a gold price tailwind promises accelerated earnings momentum. We see a unique medium term combination of strong growth and an impressive RoE of 28%, not to mention the low asset quality risk. Retain ‘buy/SO’.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Sensex, Nifty regain momentum to end 1% up; check what pushed markets higher today
2Sebi plans to rope in agency to revamp IT network, communication systems
3Enough liquidity globally; here’s what will decide how much funds come to Indian stock market | INTERVIEW