Muthoot Finance reported Q2 FY27 PAT of Rs 2,980 crore (+27% YoY/+17% QoQ), above Nirmal Bang's estimates, driven by ~150 basis points margin expansion and 9% QoQ assets under management growth, which more than offset a ~100 bps sequential increase in credit costs. Looking ahead, Nirmal Bang expects loan growth to remain healthy, albeit moderating from the extraordinary growth witnessed in the previous year. Muthoot Finance's margins should stabilise around ~11%, supported by the management's targeted portfolio yield of 18–18.5%. While asset quality metrics may remain elevated in the near term, the brokerage do not anticipate material eventual credit losses, given the strong collateral cover with average LTV of ~65% and historically high customer repayment rate of ~98%.
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Nirmal Bang Report
Following Muthoot Finance Ltd.'s decent September-quarter results, Nirmal Bang has maintained its Hold rating on the stock with a revised target price of Rs 2,750 from Rs 3,000, based on a conservative ~1.75 times Sep-28E standalone adjusted book value, along with Rs 175/share for subsidiaries. The set target price implies a potential upside of 14% from the reports market price.
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Looking ahead, Nirmal Bang expects loan growth to remain healthy, albeit moderating from the extraordinary growth witnessed in the previous year. Margins should stabilise around ~11%, supported by the management's targeted portfolio yield of 18–18.5%.
While asset quality metrics may remain elevated in the near term, the brokerage do not anticipate material eventual credit losses, given the strong collateral cover with average LTV of ~65% and historically high customer repayment rate of ~98%.
Overall, Muthoot should continue to deliver industry-leading profitability, with RoA of ~5.6–5.8% and RoE of ~26%. However, stabilising gold prices, elevated asset quality metrics, increase in funding costs (with the rate hike cycle) and intensifying competition in the gold loan segment are likely to limit further upside.
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