Should you buy, sell or hold Muthoot Finance after muted Q1 numbers?

New Delhi: Brokerage firms remain mostly muted on Muthoot Finance after the gold loan player reported a weak performance in the June 2022 quarter.

India’s largest gold financing company in terms of loan portfolio posted a net profit of Rs 802 crore during the first quarter of 2022-23, down 17 per cent from Rs 971 crore during the first quarter of 2021-22.

Following the results, shares of Muthoot Finance hit the lower circuit on Tuesday as the stock plunged 15 per cent to Rs 1,009.8 on Tuesday. The scrip had settled at Rs 1,187.95 on Friday.

Total income for the quarter under review was down by 8 per cent to Rs 2,509 crore as against Rs 2,715 crore during the same quarter in 2021-22.

During the quarter, loan assets stood at Rs 56,689 crore as compared to Rs 52,614 crore in the same quarter last year, a growth of 8 per cent year-on-year. For April to June period, loan assets declined by Rs 1,364 crore, down 2 per cent.

CLSA has maintained its underperform rating on Muthoot Finance with a target price of Rs 1,200, which is very close to its previous close of Rs 1,188 on Friday. The global brokerage firm noted that the gold loan book has contracted.

It has trimmed EPS estimates for FY23-CY25 by 8-15 per cent. "Discounted teaser loans to benefit yields from next quarter," it added. "Expense ratio remains elevated."

The stock has grown about 2.6 times in the past five years. "We believe Muthoot is a play on the gold finance theme but would wait for a clear picture on competitive intensity and earnings trajectory," said ICICIDirect Research.

However, it has downgraded the stocks to 'hold' from 'buy' with a target price of Rs 1,300. "We value the core gold loan business at about 2.1x FY24E." It prefers CSB Bank compared to Muthoot to play the gold loan theme.

Nirmal Bang Institutional Equities has a buy tag on Muthoot Finance with a target price of Rs 1,443, though it has lowered its growth and profitability estimates. It expects growth rates to be moderate as elevated stress warrants prioritizing collections.

"Net new customer acquisition will be a key monitorable in the coming quarters and also the most critical determinant of the company’s gold loan growth trajectory," it added. "Cost of funds (CoF), though on an upward trajectory, will see a gradual increase."

"Given the lack of loan growth visibility and a structural change in Gold loan NBFC business models that we foresee, we believe there are limited triggers for a further upside in the stock," said Motilal Oswal, downgrading the stock to 'neutral' with a target price Rs 1,250.

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