Muthoot Finance stock surges 5% on strong Q3, but analysts cautious on margin outlook

Analysts at CLSA have an ‘underperform’ call on Muthoot Finance, with a target price of Rs 1,440 a share

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Muthoot Finance shares surged 5 percent on February 15 morning, a day after the company reported a 14 percent rise in net profit in the December quarter even as brokerages remain cautious on the counter as margins missed estimates.

The stock of this gold financer has declined more than 6 percent in the past month against a 2 percent drop in the benchmark Sensex.

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Analysts at CLSA shared an “underperform” call on Muthoot Finance, with a target price of Rs 1,440 a share.

“Some improvement in net interest margin (NIM) may be there but further rise in cost of funds are likely. The company’s subsidiary is doing well on growth front, however, it is only 10 percent of consolidated assets under management (AUM),” the brokerage firm said.

The company’s revenue was up 27 percent in the third quarter from the year-ago period.

Analysts at Morgan Stanley shared an “underweight” rating, with a target price of Rs 1,165 per share.

“NIM at 10.9 percent was below estimate of 11 percent. However, AUM growth and pre-provision operating profit (PpOP) were in-line with estimates,” the brokerage firm said.

ALSO READ: Muthoot Finance Q3 net profit jumps 14% YoY to Rs 1,027 crore

Muthoot Finance approved raising up to Rs 16,000 crore through an issue of non-convertible debentures.

The company’s standalone loan assets under management(AUM) increased 23 percent, while gold-loan AUM grew 22 percent for the nine months ended December 31.

“We aim to capitalise on the strong growth opportunity in affordable housing, microfinance, personal loan, and vehicle finance and grow the share of subsidiaries to 18 per cent-20 per cent in the next five years,” Muthoot Group chairman George Jacob Muthoot said.

Last week, smaller rival Manappuram Finance reported a profit that beat estimates, driven by growth in non-gold loan segments.

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