Stock To Buy: Buy This NBFC Stock Close To 52-Week Low For Potential Gains Of 21%

Gold disbursements facing headwinds from aggressive competition, GS3 declined sequentially

According to the brokerage firm, Motilal Oswal, "Gold loan/consolidated AUM grew 11% each YoY to Rs 575b/Rs 645b. Gold tonnage grew 5% QoQ and 9% YoY to 187t. Average monthly disbursement stood at INR112b in 4QFY22 (v/s Rs 104b/ Rs 77b in 3QFY22/4QFY21), which suggests that the high-ticket sized Gold loans are facing aggressive competition from MGFL and Banks. The number of loan accounts fell ~2% QoQ to 8.37m, while the number of active customers remained flat QoQ at 5.32m. LTV declined by ~400bp for the second consecutive quarter to 65%."

GS3 declined sequentially, while Gold auctions still remain elevated. "GS3% fell ~80bp QoQ to 3%. The review of PD/LGD assumptions and a sequential decline in NPAs has contributed to the provision write-backs. Gold auctions stood at INR21b in 4Q (v/s INR28b/INR2.7b in 3Q/2Q FY22)." the brokerage has said.

Brokerage views on the 4QFY22 Results of the Muthoot Finance

According to the brokerage for Muthoot Finance, 4QFY22 was characterized by:

a) Gold AUM growth of 6% QoQ, despite auctions of ~INR21b.
b) a decline of ~160bp QoQ in spreads to 11.4%, driven by competition in the high-ticket sized Gold loans.
c) GS3% still elevated at ~3%, despite declining by ~80bp QoQ.
d) PPOP declined by 17% QoQ, but PAT fell 7%, led by provision write-backs of INR0.7b.

Brokerage's comments and views, target price, ratings

The Gold loan demand landscape is not very buoyant. As such, the incremental growth for incumbents will accrue at the cost of compression in spreads/margin, even as players will need to undercut each other on offered interest rates. "We expect Muthoot Finance to deliver a standalone AUM growth of ~8%/13% in FY23/FY24. RoA/RoE is likely to decline to (5%/18%) over the next two years. We cut our FY23/FY24 EPS estimate by 18%/22% to factor in lower loan growth and a meaningful moderation in spreads. Current valuations of 1.9x FY24 P/BV reflect concerns on tepid Gold loan growth and a consequent impact on margin and profitability. We reiterate our Buy rating, with a Target Price of Rs 1,325/share (based on 2.2x FY24E BVPS)," the brokerage has said.

About The Company- Muthoot Finance Ltd

Muthoot Finance Ltd. is a Non-banking Finance Company (NBFC) engaged in the business of diversified interests in the fields of Financial Services, Gold loans, Healthcare, Real Estate, Plantations, Foreign Exchange, Information Technology (IT), Education, Insurance Distribution etc. With a market cap of Rs 43,993 crore, the company is the largest gold loan NBFC in the country. The company has more than 5,330 branches spread across the country with more than 40,000 employees.