Muthoot Finance Shares Plummet 10% Following Disappointing Q1 Results; Brokerages Weigh In

Shares of Muthoot Finance faced a significant downward adjustment of over 10% to Rs 2,767 following the release of its quarterly performance report, highlighting a slowdown in asset growth that has raised concerns among investors. The standalone assets under management (AUM) demonstrated a year-on-year increase of 43% and a quarter-on-quarter growth of 6%. However, the consolidation of AUM growth matched the standalone figures, revealing a moderation compared to the rapid growth trajectory witnessed in preceding quarters, primarily driven by rising gold prices.

Financial analysts from Motilal Oswal, Nuvama, and Equirus Securities have retained diverse ratings on Muthoot Finance, reflecting an overall cautious outlook. Motilal Oswal maintains a Neutral rating with a target price of Rs 2,850, attributing potential pressure on margins to intense competition within the gold loan sector. The management has anticipated yields to normalize around 18-18.5%, yet competitive forces may constrict net profit growth to only 4-5% for FY27, despite a notable net profit of approximately Rs 2,550 crore for Q1. Key variables moving forward include rivals’ responses to Muthoot’s pricing strategies.

Analysts at Nuvama and Equirus share concerns regarding the company’s ability to sustain margins in the face of aggressive competition. Nuvama’s Reduce rating and target price of Rs 3,300 highlight expectations of a direct correlation between loan growth and gold price movements, forecasting AUM growth of 25% in FY27, tapering to 12% in FY28. Equirus presents a conservative target of Rs 3,150, acknowledging that while strategic price cuts may attract customers, they further compress profit margins. Both firms project net interest margins to decline to approximately 9.5% by FY28, reflecting anticipated pressures on profitability from competitive dynamics.

Overall, while Muthoot Finance’s AUM and customer acquisition efforts showcase resilience, the underlying margin compression and potential risks associated with increasing bad loans signal caution for investors. The emphasis on pricing to sustain market share could erode profitability in the coming quarters, necessitating close monitoring of market trends and competitor strategies to assess the company’s future performance effectively.

Source: The Economic Times

(Expert Note: This report was prepared by the Wealthova team.)