- Muthoot Finance approved merging its gold loan subsidiary Muthoot Money Ltd with itself
- The merger aims to reduce costs and simplify management for better administration
- Morgan Stanley values Muthoot Money at an implied F28e P/BV of 2.0x versus 2.5x standalone
Muthoot Finance on Monday announced that its Board of Directors approved the merger of its wholly owned gold loan subsidiary Muthoot Money Ltd with itself, subject to statutory and regulatory approvals.
The amalgamation will enable rationalization of costs by eliminating redundancies and achieving simplification of management structure thereby leading to better administration and cost savings, Muthoot Finance said.
Brokerage firm Morgan Stanley noted that Muthoot Money has Rs 109 billion in gold loans, 12 tonnes of gold collateral, and 1006 branches. It generated an ROA of 6.3% in Q1FY27, ROE of 28% on a calculated basis and a net profit of Rs 1.7 billion.
The stated aim of the merger is simplifying the group structure and unlocking operational, financial and administrative efficiencies within the combined entity, it added.
Morgan Stanley said that Muthoot Money contributes around 5% to its SOTP valuation and it is valued at an implied F28e P/BV of 2.0x versus 2.5x for the standalone business.
The brokerage firm has an ‘Overweight' rating on Muthoot Finance shares, with a target price of Rs 3,705 per share.
The upside risks, according to Morgan Stanley, include stronger-than-expected gold loan growth, reduced macro risks and contained increase in funding costs, and good execution on asset quality.
However, the downside risks include further sharp fall in gold prices, affecting loan growth, wholesale funding dislocations and sharp rise in funding costs, and a sharp rise in bad loans.
On Monday, Muthoot Finance share price ended 3.49% lower at Rs 2,990.00 apiece on the BSE.
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