Muthoot Finance shares slip 5% after June quarter result; brokerages mixed

Sales of the company rose 25.96 per cent to Rs 2,604.48 crore in the quarter ended June 2020 (Photo: Shutterstock)
Shares of Muthoot Finance, one of India's leading gold financing companies, declined over 5.5 per cent on the BSE on Thursday, a day after the company declared its financial results for the quarter ended June 2020 (Q1FY21). 

At 09:29 AM, the stock was trading around 4 per cent lower at Rs 1,207.50 on the BSE against Wednesday's close of Rs 1,256. The stock hit a low of Rs 1,185.40 in the early deals on Thursday. In comparison, the benchmark S&P BSE Sensex was trading 0.82 per cent lower at  38,297.51 levels. 

For the quarter ended June 2020, Muthoot Finance posted a 53.46 per cent rise in its consolidated net profit at Rs 853.51 crore against Rs 556.19 crore in the year-ago period. Sales rose 25.96 per cent to Rs 2,604.48 crore in the quarter ended June 2020 as against Rs 2,067.67 crore in the corresponding quarter of the previous fiscal. READ MORE

While assets under management (AUM) growth took a backseat in 1QFY21, we believe this is a one-off given the muted disbursements in April - May 2020. "Demand for gold loans picked up in July - August 2020, and we expect it to sustain given the tough economic environment," note analysts with Motilal Oswal Financial Services (MOFSL) in a result review note. 

Adding, "Over the past year, Muthoot Finance has increased liquidity on the balance sheet from 3 per cent of loans to 20 per cent of loans, which is comforting. However, this is likely to be a drag on margins going ahead. While its subsidiaries have witnessed improving collection efficiency, we remain cautious about the asset quality outlook," the brokerage said. It has a "Neutral" rating on the stock with the target price of Rs 1,300. 

Analysts at Antique Stock Broking observe that the company's growth sees temporary blip on account of closure of branches due to Covid-19 pandemic and lost loan assets worth Rs 3.2 billion. However, demand continues to remain strong despite the ongoing pandemic situation post opening of branches.

"Given the recent rally, Muthoot Finance now trades at nearly 13x and 2.9x on FY22 earnings and book respectively. The stock still provides room for some upside on improved micro and macro dynamics of the business, the brokerage says. It has a "BUY" rating on the stock with the target price of Rs 1,410.

Edelweiss Securities says that the current environment offers unique growth and asset safety tailwinds to gold financing—a rarity amongst lenders. Super-normal profitability (RoE potential of over 25 per cent), strengthening gold price tailwind and low asset quality risks compel it to increase target multiple to 3.1x FY22E P/B (2.5x earlier).

"We see little competitive threat from banks being allowed to increase gold loan loan-to-value (LTV) to 90 per cent from 75 per cent due to non-overlapping customer base and operational challenges of processing gold loans at scale. Overhang of non-core businesses (nearly 12 per cent of AUM) remains the key risk. Maintain ‘BUY’ with revised TP of Rs 1,450 (earlier Rs 1,160)," the brokerage said. 

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