Motilal Oswal has given Neutral recommendation for Muthoot Finance with a target price of Rs. 1250 in its research report issued on Aug 13, 2022

Motilal Oswal’s research report on Muthoot Finance

MUTH’s standalone PAT declined by 17% YoY to ~INR8b (23% miss), led by a compression of ~220bp YoY in NIM and the annualized OPEX/AUM ratio remaining elevated at 3.8% (PY: 3%). For MUTH, 1QFY23 was characterized by: a) a 2.4% QoQ decline in Gold AUM, led by auctions of ~INR13.7b (FY22: INR52b), and some closure of teaser-rate customer accounts, who were migrated to higher interest rates; b) ~180bp QoQ decline in spreads to 9.6%, reflecting the impact of teaser-rate loans disbursed during Dec’21 to Mar’22; and c) elevated advertising and publicity costs at INR467m (PQ: INR366m), suggestive of the aggressive brand campaigns in the face of the current competitive landscape in high-ticket gold lending.

Outlook

Given the lack of loan growth visibility and a structural change in Gold loan NBFC business models that we foresee, we believe there are limited triggers for a further upside in the stock. We downgrade the stock to Neutral with a TP of INR1,250 (based on 2.1x FY24E P/BV) .

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