Muthoot Finance sinks 9% on weak Q4 result; analysts bearish on stock

Motilal Oswal Financial Services believes FY23 will be a difficult year for Muthoot with a clear trade-off between growth and margin

Shares of Muthoot Finance sunk 9.4 per cent to Rs 1,029 per share on the BSE in Friday's intra-day trade after the gold financier reported a weak set of number for January-March quarter of FY22 (Q4FY22). At 10:30 AM, its shares quoted at Rs 1,060, down about 7 per cent, as against 0.6 per cent rise in the benchmark S&P BSE Sensex. 

India's largest gold financing company on Thursday reported a 4 per cent decline in standalone profit at Rs 960 crore as compared to Rs 996 crore profit reported during the corresponding period last year. The company's standalone income also dipped 5 per cent to Rs 2,678.37 crore.

Meanwhile, on a consolidated basis, net profit came at Rs 1,006.23 crore, down from profit of Rs 1,023.76 crore last year. Consolidated loan assets under management increased to Rs 64,494 crore as of March 31, 2022, up by 11 per cent from the same period a year ago.

"For Muthoot, Q4FY22 was characterized by Gold AUM growth of 6 per cent QoQ, despite auctions of Rs 2,100 crore; a decline of 160bp QoQ in spreads to 11.4 per cent, driven by competition in the high-ticket sized Gold loans; and pre-provision profit declined by 17 per cent QoQ, and PAT fell 7 per cent, led by provision write-backs of Rs 70 crore," highlighted Motilal Oswal Financial Services.

Given this, the brokerage firm believes FY23 will be a difficult year for Muthoot with a clear trade-off between growth and margin. It said the stock trades at 1.9x FY24E BVPS, reflecting concerns around the muted Gold loan growth and a corresponding decline in profitability.

"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 to deliver a standalone AUM growth of 8 per cent/13 per cent in FY23/FY24. Return on Asset (RoA) and Return on Equity (RoE) is likely to decline to 5 per cent and 18 per cent, respectively, over the next two years," it added.

Those at Kotak Institutional Equities said two headwinds -- lower organic expansion and muted gold prices -- may affect Muthoot's growth going ahead.

"We are cutting our estimates by 7-10 per cent to reflect lower loan growth, margins and higher operating expenses. We don't rule out downside risk to growth (10-13 per cent) due to the aforesaid challenges even as we expect NIM to expand a bit as pricing power improves, unless any sharp gold price correction hits loan-to-value (LTV) and yields. The company has a good track record of maintaining asset quality. We retain REDUCE with fair value of Rs 1,200," it said.