On Thursday, shares of Muthoot Finance declined as much as 6.4 percent to Rs 1,175, a day after the NBFC (non-banking finance company) reported its financial results for the June-ended quarter.
For the first quarter of 2020-21, the company has reported a 53.46 percent rise in its consolidated net profit at Rs 853.51 crore against Rs 556.19 crore a year ago. Its sales were up 25.96 percent to Rs 2,604.48 crore against Rs 2,067.67 crore in June 2019.
Motilal Oswal Financial Services in a result review note gave "neutral" rating to the stock with a price target of Rs 1,300 saying that while "demand for gold loans picked up in July - August 2020, and we expect it to sustain given the tough economic environment."
"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," it added.
"The company's consolidated AUM grew 16 percent YoY and declined 1 percent QoQ, which is lower than expected. PAT increased, largely supported by controlled op-ex. The near-term risk for Muthoot is a sudden decline in the gold price and increased competition from banks. The RBI has recently increased LTV on gold loan to 90 percent for banks. We expect a stock price to consolidate. Given the recent rally, Muthoot Finance now trades a higher range of valuation," said Angel Broking.
Kotak Institutional Equities has downgraded the stock to "reduce", with a price target of Rs 1,100.
On the other hand, Edelweiss Securities has a "buy" rating on the stock with an increased price target of Rs 1,450 from Rs 1,160.
"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," the brokerage said.