This Gold Loan Stock Could Surge 30%, Company Rapidly Expanding Branches

Muthoot Finance recently came-up with its quarterly numbers, which were rather tepid. However, Prabhudas Lilladher is betting on the stock to rise about 30% from current levels. The brokerage has set a target price of Rs 1315 on the stock as against the market price of Rs 1014.

Loan growth at Muthoot remains flat

Muthoot Finance reported a muted growth of 0.9% QoQ in loan book to Rs 577 billion, up by 5% YoY, as gold loan business continues to see slowdown at 0.6% QoQ to Rs. 568 billion.

According to Prabhudas Lilladher, de-growth in tonnage was also seen (175 tonnes from 177 tonnes in Q2FY23). "Number of active customers were flat at 5.2mn, whereas number of loan accounts decreased 1% QoQ (8.1mn). Net Interest Margins grew strongly by 90 basis points to 11.9% from 11.0% in Q2FY23, on account of strong increase in yields to 18.2% from 17.4% in Q2FY23. Cost of funds increased by 20 basis points QoQ and stood at 8.13%. On subsidiaries front, Belstar Microfinance's AUM grew 3.8% QoQ/ 39.2% YoY to Rs. 53.4 billion," the brokerage has said.

Expansion at Muthoot Finance

According to Prabhudas Lilladher, the company received approval from RBI to open 150 new branches out of which 54 branches were opened in Q3 (24 branches in Q2). Management expects remaining branches to be operational by year end. In FY24, management will again apply for setting up 150 new branches. In fact, we believe that the company would continue to face competition from banks in this space, though the ease with which you could get loan from Muthoot is not comparable to banks.

"The gross non performing assets at the company deteriorated by 91 basis points and stood at 2.58% vs 1.67% in Q2FY23. However, management does not see material impact on credit costs. Bad debts were written off at Rs40mn in Q3FY23, same as previous quarter vs Rs. 63mn in Q3FY22. Provisions for the quarter stood at 0.5bn, as against write back of Rs 0.1bn in the last quarter," PL has said in its report.

How the stock of Muthoot has moved?

The shares of Muthoot Finance have fallen significantly from its 52-week high of Rs 1469. The stock had also dipped to a 52-week low of Rs 950. However, it has since recovered to Rs 950 per share. This means the stock is trading below the 200 day moving average as well.

Current market price of Muthoot	52-week low	52-week high
Rs 1014	950	1469

Disclaimer

The stock has been taken from the brokerage report of Prabhudas Lilladher, with a few additions from our end. This is not a buy recommendation from Greynium or the author. Neither the brokerage house, nor Greynium Information Technologies Pvt Ltd, nor the author should be held liable for losses based on this article.