Muthoot Finance shares tank 7 percent as net profit in Q2 below estimates

Muthoot Finance shares tanked 7.4 percent in trade on November 10 as the gold financing firm reported profit after tax of Rs 990.99 crore, falling under analysts’ estimates.

The standalone PAT grew 14 percent YoY, while net total income grew 20 percent to Rs 1,920 crore. Including Muthoot Finance’s first-ever ARC sale of Rs 700 crore, AUM grew 21 percent YoY at Rs 69,002 crore for H1FY24.

As of 2.03 pm, shares of the company were trading at Rs 1,271.4 on the NSE, lower by 3.19 percent.

Muthoot Finance’s performance for the quarter ended September was dragged by muted gold loan growth, rising 2 percent sequentially, an 80 bps contraction in NIMs; and an increase in the cost-to-income ratio to 30 percent primarily owing to a rise in cost-of-borrowing, said analysts.

Follow our market blog to catch all the live action

The muted gold loan growth saw support from high gold prices allowing an increase in loan-to-value (LTV) to ~70 percent and an increase in customer base of ~2 percent sequentially.

CLSA said that as NIMs moderated further, the loan growth slowed down as expected. The yield compression occurred on an already low base. The global brokerage expects the gold financier to see pressure on loan growth for the next couple of quarters on stagnant gold prices, tepid tonnage growth and falling loan-to-value ratio.

CLSA has an ‘underperform’ call on the company, with a target price of Rs 1,350 per share. It also cut the PAT estimates by 6-7 percent on NII cuts.

Also Read | Muthoot Finance misses Q2 profit view as costs weigh

Motilal Oswal said that there are limited upsides to the stock, and cut their target price to Rs 1,270 per share, with a ‘neutral’ rating. “Higher gold prices had aided sectoral gold loan growth over the two prior quarters and even Muthoot Finance had benefited from the same. We are still not sure, though, if Muthoot Finance is over the hump of a trade-off between gold loan growth and margin,” said the domestic brokerage.

The management continued to guide for 15-20 percent gold loan growth in FY24. Additionally, the company sold a gold loan pool of Rs 700 crore to an ARC in the last week of September 2023. The sale was done to give more time to customers to repay and release their gold jewelry and reduce NPAs to manageable levels.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.