Muthoot Finance Q1 Review: Gold Loan Growth Remain Strong; IDBI Capital Maintains 'Hold' — Check Target Price
IDBI Capital retains 'Hold' stance on Muthoot Finance despite raising the 12-month target price, citing improved earnings visibility but limited upside from current levels.
Muthoot Finance's gold loan book grew by a solid 40% YoY, pushing overall AUM past Rs 1.2 trillion for the first time. New customer acquisition and favorable gold prices were key contributors. NIMs saw a sharp 88 bps QoQ rise to 12.15%, as yields improved and the cost of borrowing fell by 11 bps. The company also managed to maintain spreads at ~9.5%.
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Muthoot Finance Ltd. reported robust gold loan growth at 40% YoY vs 41% YoY (FY25) led by higher gold prices and new customer additions. Overall AUM growth stood at 42% YoY vs 43% YoY (FY25). Management maintained guidance at 15% gold loan growth for FY26.
We revised upwards gold loan growth to 15% vs 12% CAGR (FY25-27E) earlier. Net interest margins improved QoQ led by increase in yield on advances. Net interest income grew strongly by 51% YoY led by rise in margins; pre-provision operating profit grew by 63% YoY led by higher other income (up 135% YoY).
Further, provisions declined by 81% YoY due to recovery from NPA accounts; thus PAT grew by 90% YoY. Stage III loan assets declined to 2.6% vs 3.4% QoQ led by better recovery.
We have revised estimates upwards led by higher AUM growth and maintain the ‘Hold’ rating with a new target price of Rs 2,500 (earlier Rs 2,390), valuing it at 2.4x P/BV FY27E.
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