Muthoot Finance Falls After Profit Misses Estimates In June Quarter

Shares of Muthoot Finance Ltd. extended losses for the second straight day on Wednesday after its first-quarter profit missed analysts' estimates.

Brokerages, on the other hand, remain optimistic about the company's outlook in the near term, but they are concerned about the removal of the RBI's ban on gold loans for a large gold loan NBFC.

The company's net profit rose 10.6% year-on-year to Rs 1,079 crore in the quarter ended June 2024, according to an exchange filing. That fell short of the consensus estimate of Rs 1,164 crore provided by analysts tracked by Bloomberg.

During the period, total income rose 22.6% to Rs 3,710 crore.

The company reported healthy gold loan growth, aided by gold tonnage growth and stronger customer additions, according to Motilal Oswal. "Despite the expected seasonality in gold loan growth in the second and third quarters, we expect it to remain healthy in the near term, aided by higher gold prices and levers on loan-to-value."

However, the brokerage noted that the removal of the RBI’s ban on gold loans for a large gold loan NBFC remains a near-term risk. "If and when the RBI revokes the ban, we expect competitive intensity to again increase in the gold loan ecosystem, even though it might not be as aggressive as earlier." Motilal Oswal has maintained a 'neutral' rating but raised the target price from Rs 1,630 apiece to Rs 1,720 apiece, implying a downside of 7.2%.

Jefferies, on the other hand, increased the company's earnings per share estimates for fiscal 2025–2027 by 2-3%, primarily due to slightly improved gold loan growth and margins, as well as higher credit costs. It has maintained its 'buy' call because it believes the company offers better leverage with a positive gold price outlook and low asset quality risk. It has also maintained a target price of Rs 2,220, implying 19.8% upside from previous close.

Bernstein maintains 'outperform' on the stock with a price target of Rs 2,000, implying an upside of 8%. It said that around 75% of fiscal 2025 loan growth guidance has already been achieved and the rise in credit costs is not a concern.

The rise coincides with the general rise in credit costs seen across several lenders and is potentially a reflection of the stress seen across select consumer segments, the secured nature of the loans and a low LTV will likely translate into very low actual cash losses, it said.

The scrip fell as much as 3.29% to Rs 1,792.05 apiece, the lowest level since August 6. It pared gains to trade 3.2% lower at Rs 1,793 apiece, as of 10:01 a.m. This compares to a 0.08% decline in the NSE Nifty 50 Index.

It has risen 21.5% on a year-to-date basis and 42.2% in the last 12 months. Total traded volume so far in the day stood at 0.68 times its 30-day average. The relative strength index was at 45.93.

Out of the 23 analysts tracking the company, 16 maintain a 'buy' rating, four recommend a 'hold,' and three suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 9%.