Muthoot Finance plunges 6% as Morgan Stanley cut rating after Q1 earnings

Muthoot Finance shares dropped 6 percent in the morning trade on August 14 after broking house Morgan Stanley downgraded the stock citing risks to growth and yields as competition heats up.

At 1.24 pm, the stock was trading at Rs 1,279.75 on the National Stock Exchange, down 5.19 percent from the previous close.

The gold loan financing company reported standalone profit of Rs 975 crore for the first quarter of the current year, growing 22 percent over the year-ago period, the company said in an August 11 filing.

Total income grew 21 percent year on year (YoY) to Rs 3,026 crore during the same period. The company also got the board’s approval for an infusion of Rs 400 crore in subsidiary Muthoot Money.

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Brokerage View

Morgan Stanley has downgraded the stock from “equal weight” to “underweight” with a target price of Rs 1,050 a share.

“The gold price rise has driven Muthoot’s loan book growth this time around, stock now appears to be consolidating. Structural risks to gold loan growth and yields from competition remain,” it said.

The estimated consolidated net interest margin (NIM) reduced for FY24-26 from 12.3 percent to 11.7 percent, it said, adding the standalone FY24 earnings per share (EPS), too, were “reduced 3.6 percent followed by 5.9 percent and 6.6 percent cut for FY25 and FY26, respectively,” the brokerage firm added.

Motilal Oswal has a “neutral” call with a target price of Rs 1,290.

Management commentary

Muthoot Group chairman George Jacob Muthoot said Muthoot Finance continued to deliver a strong performance and achieved consolidated loan asset under management (AUM) of Rs 76,799 crore, a 21 percent YoY growth. Consolidated profit after tax grew 27 percent YoY at Rs 1,045 crore.

“We achieved the highest ever consolidated loan assets growth in any Q1 of Rs 5,302 crore. Our subsidiaries Muthoot Homefin, and Belstar Microfinance continue to report strong disbursements and as a result the contribution of our subsidiaries to the overall consolidated loan AUM has increased to 12 percent,” he said.

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Muthoot Finance stock has delivered a return of 29 percent over the past six months, outperforming the benchmark Nifty, which has gained 7.83 percent during the period.

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