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Systematix Research Report
Muthoot Finance Ltd. reported a mixed result, which was strong on growth but weak on margins. Strong assets under management growth (+7% QoQ) was more than offset by sharp contraction in net interest margins (-68 bps QoQ).
The increase in opex was moderate, leading to significant improvement in cost ratios. The gross / net stage-III assets further increased to 4.3%/3.8% from 3.8%/3.4% in Q4, which we do not see as a concern, given the higher collateral value of underlying asset.
Along with core gold loan segment, management focus on other product i.e. home loan, microfinance and personal loan, expected to drive 16% compound annual growth rate in consolidated AUM over FY23-25.
Rebound in AUM growth and improvement in NIMs to cause its return on asset/return on equity to improve to 5.7%/ 19.4% by FY25E from 4.9%/ ~17.6% in FY23, respectively.
We value Muthoot Finance at 2.2 times FY25E consolidated book-value to arrive at a revised target price of Rs 1,550 (earlier Rs 1,500) and hence maintain our 'Buy' rating on the stock.
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