Gold price near record high: Time to bet on Manappuram, Muthoot Finance?

Higher gold prices have led to increased off-take in gold loans over the past few months and Muthoot Finance is currently the best franchise among gold loan NBFCs to benefit from higher gold prices, said Motilal Oswal in a report.

However, the company is facing stiff competition from banks as well as select NBFCs who have recently become aggressive in the sector.

Gold prices have surged over 10% in the last three months to hit a record of Rs 56,562, taking cues from the weakness in the US dollar and expectations that the US Fed would go slower on key interest rates.

"We believe that the strength in gold prices will sustain in CY23 because of the expected deterioration in the broader macroeconomic indicators both in India as well as globally," it said in a report.

The brokerage has a "neutral" rating on Muthoot Finance with a target price of Rs 1,150. "We expect Muthoot Finance to deliver standalone assets under management (AUM) growth of 9-10% in FY24/FY25 with an RoA/RoE of 4.9-17% in FY24E."

Muthoot Finance shares were down marginally in afternoon deals at Rs 1,047.25 on Wednesday.

For Manappuram Finance, the brokerage believes there is still a re-rating scope in valuation multiples. The stock is currently trading at 0.9x FY24E P/BV. Motilal Oswal has a "Buy" rating on the stock with a target price of Rs 150.

Motilal Oswal sees a moderation in the gold loan book because of its current focus on margins and profitability.

"Unless the company offers lower pricing, we believe the company will find it difficult to demonstrate gold loan growth. On the other hand, non-gold product segments should exhibit strong growth."

"While we expect MGFL to deliver an 8% gold loan growth each in FY24/FY25, we model consolidated AUM growth of 15-16% with a consolidated RoE of 4.1-17% in FY24E," it said.

However, the traditional gold NBFCs face stiff competition from fintechs. Some of the biggest beneficiaries of growth in gold loans were banks and fintechs, which offered relatively lower-priced gold loans. Motilal Oswal believes companies such as Rupeek and India Gold are the biggest competition to traditional gold NBFCs.

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