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Muthoot Finance Ltd>
  • CMP : 1,122.9 Chg : -21.50 (-1.88%)
  • Target : 1,300.0 (21.50%)
  • Target Period : 12-18 Month

27 May 2022

Growth at cost of margins

About The Stock

Muthoot Finance is a leading gold financier in India with gold loan AUM of ₹ 57531 crore as on March 2022.

  • It has a large footprint across India with 4617 gold lending branches
  • The company also has a presence in other lending segments like microfinance, housing, vehicle finance via its subsidiaries

Muthoot Finance reported a soft quarter on an overall basis.

  • Overall AUM up 10.3% YoY, gold AUM up 11% YoY at ₹ 57531 crore
  • NII fell 8.8% QoQ, NIMs down 153 bps QoQ at 12.2%, C/I higher at 30.5%
  • Despite provision reversals, PAT de-grew 4% YoY at ₹ 960 crore
  • Stage-3 assets fell 83 bps QoQ to 2.99%. Gold auctions 4% of total loans
What should Investors do?

Muthoot Finance’s share price has grown ~3x in the past five years. We believe this is a good opportunity to play on the gold finance theme.

  • We maintain our BUY rating on the stock
Target Price Valuation

We value the core business (gold loan) at ~2.1x FY24E ABV and assign ₹ 38 to subsidiaries to arrive at a target price of ₹ 1300 per share

Key Triggers for future price performance
  • Strong AUM guidance of 12-15% and sticky customer base to aid earnings and profitability
  • The management is confident on maintaining spreads at ~10% level that should have limited the downside impact on margins
  • Healthy return ratios RoE, RoA of ~22%, ~6%, respectively, to aid valuations
New Stock Ideas

Apart from Muthoot, in our coverage we also like CSB Bank.

  • CSB Bank has gold and SME as its key loan segments. Change in business strategy has led to an improved performance in the past few years
  • BUY with a target price of ₹ 270

Key Financial Summary

Particulars FY20 FY21 FY22 3 Year CAGR_(FY19-FY22) FY23E FY24E 2 Year CAGR (FY22-24E) 3 Year CAGR (FY21-FY24E)
NII 5,773.5 6,636.1 7,120.3 16.4 8,064.3 9,539.7 15.7 37.0
PPP 4,153.1 5,101.5 5,436.4 20.5 6,201.1 7,365.8 16.4 58.0
PAT 3,018.3 3,722.2 3,954.3 26.1 4,561.7 5,423.7 17.1 -
ABV (|) 268.5 369.8 419.9 - 501.8 597.9 - -
P/E 14.2 11.5 10.9 - 9.4 7.9 - -
P/ABV 4.0 2.9 2.5 - 2.1 1.8 - -
RoE (%) 28.3 27.8 23.5 - 22.9 23.1 - -
RoA (%) 6.8 6.5 5.9 - 6.1 6.4 - -
Source: Company, ICICI Direct Research


Variance Table

  Q4FY22 Q4FY22E Q4FY21 YoY (%) Q3FY22 QoQ (%) Comments
NII 1,720 2,007 1,838 -6.4 1,886 -8.8 Soft operational performance due to margin pressure
NIM (%) 12.21 13.80 14.27 -206 bps 13.74 -153 bps  
Other Income 37 35 39 -4.1 32 15.6  
Net Total Income 1,758 2,042 1,877 -6.4 1,918 -8.4  
Staff cost 313 269 276 13.5 255 23.0 Led by increase in employee count
Other Operating Expenses 222 209 240 -7.3 197 12.8  
PPP 1,222 1,564 1,361 -10.2 1,467 -16.7  
Provision -70 35 11 -728.3 89 -178.7 Provision reversals during the quarter
PBT 1,292 1,529 1,350 -4.3 1,378 -6.2  
Tax Outgo 332 387 354 -6.3 349 -5.0  
PAT 960 1,142 996 -3.6 1,029 -6.7 Subdued topline resulted in PAT de-growth
Key Metrics              
GNPA 1,737 1,882 464 274.3 2,091 -16.9 Asset quality broadly improved; lower auctions QoQ
AUM 58,053 59,173 52,622 10.3 54,688 6.2 AUM growth driven by gold loans
Borrowings 49,870 47,812 46,020 8.4 47,123 5.8  

Terms & conditions and other disclosures



I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Sameer Sawant, MBA Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.                


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