This Finance Sector Stock Fell 12% Today, Buy It For Target Price Of Rs 1431

Leading brokerage firm Prabhudas Lilladher has given buy rating to Muthoot Finance Ltd stock for a target price of Rs 1431 apiece. If you buy the stock at the current market price of Rs 1040 apiece it has the potential of offering 37.6% gain. Muthoot Finance (MUTH) recorded tepid loan growth (2% QoQ de-growth and 7.7% YoY growth) to Rs 567bn due to decline in gold loan AUM by 2.4% QoQ to Rs 561bn.

Stock Outlook

The current market price of the stock is Rs 1039 apiece. It fell 12.47% in trading today. The 52-week high is Rs 1722 apiece and 52-week low is Rs 961 apiece. The stock has fallen 29% in 1 year. It has given return of 63% in 3 years and 129% in 5 years. If you buy it its current market price, it can offer you a gain of 37.6% with a target price of Rs 1431 apiece.

Loan de-growth led by fall in gold loan AUM

MUTH recorded 2% QoQ de-growth in loan book to Rs567bn but up by 7.7% YoY, due to 2.4% QoQ de-growth in gold loans at Rs562bn. 5% QoQ degrowth in tonnage (178 tonnes from 187 tonnes in Q4'22), and reduction in number of active customers who were offered teaser rates resulted in lower Gold AUM. Lower yields due to residual teaser book affected NIM's as yields fell to a low of 17.3% in Q1'23.

Management has said that by 30th of June all the teaser rates have been migrated to higher rates. The positive impact of the teaser rate was that company were able to attract assets of new high-value customers into the book. Now efforts are on by the company to retain these new customers, even after discontinuing the teaser rates. On the subsidiaries front Belstar and Muthoot Homefinance sees a 8% and 0.3% QoQ growth in their AUM.

Asset quality sees improvement on improving collections

Gold loan business that contributes >90% to overall AUMs of the Co. registered 2.13% GNPA vs 2.99% in Q4'22. Auctions in the quarter came in at Rs13.7bn.

Valuation

According to Prabhudas Lilladher, "We have maintained our EPS estimates for FY23 and FY24 as we expect yields to improve from 17.3% to 18-19% in the coming quarters as teaser loans are re-priced. We have maintained a 14% CAGR in gold AUM book from FY22-24. Our core book multiple stands at 2.4x PABV Sep'24E. Subsequently our SoTP is maintained at Rs. 1,431. Reiterate BUY."

About Muthoot Finance

The company provides gold loans on highly easy terms and conditions to people of each segment of the society. Its gold loan range begins from ₹ 1500 and there is no maximum limit. Driven by the invaluable trust and commitment that people have shown in us through centuries, It has created a reputable market image. It has a market capitalization of Rs 41,735.35 crore.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.