The stock of non-banking finance company has surged 26 per cent in past five weeks, despite the company reporting one per cent year-on-year (YoY) rise in net profit to Rs 485 crore on the back of by muted growth in the top-line and one-off taxes to the tune of Rs 22 crore in December 2018 quarter (Q3FY19). In comparison, the S&P BSE Sensex was up 2 per cent during the same period.
The company’s assets under management (AUM) grew 15 per cent YoY as against 17 per cent last quarter on account of tighter liquidity condition in the market. With the impact of demonetization behind, favorable regulatory requirement and stable gold prices, the management is targeting a healthy growth going forward. Strong branding (CSK in IPL and Amitabh Bachchan) has a positive impact on the growth.
"For the two years post demonetisation, growth eluded gold financiers and Muthoot Finance was no exception. This changed in the past few quarters when there emerged a tailwind to growth from increasing gold prices and stronger demand. But, there was a blip in third quarter, which we plan to monitor closely," the brokerage firm Motilal Oswal Securities said in result update note.
“The company’s strategy of collecting interest on a regular basis has helped improvement in net lending yields and kept credit cost at lower levels. As it utilizes excess provision created under earlier accounting standard, credit cost for next 2 years will be miniscule. Tier I capital of 25 per cent ensures unhindered growth along with no need to raise capital for at least next two years,” analysts at IDBI Capital said in results review report. The stock, however, is trading well above brokerage firm target price of Rs 595 per share.
Muthoot Finance has rallied 71 per cent from its 52-week low level of Rs 357 touched on October 9, 2018, against 9 per cent rise in the S&P BSE Sensex. At 10:31 am; the stock was trading 2 per cent higher at Rs 605, as compared to a marginal 0.02 per cent gain in the benchmark index. A combined 827,101 equity shares changed hands on the counter on the BSE and NSE so far.