Muthoot Finance Q3 Results Review - Steady Quarter; B/S Growth In Tandem With Gold Price Movement: Systematix

Systematix Report

Muthoot Finance Ltd. reported in-line performance with earnings growth of 14% YoY aided by steady net interest margin and 27% YoY growth in consolidated asset under management. Gold AUM growth was marginally better than expected at 22% YoY. The yield on the gold loan book inched up by 14 basis points QoQ at 17.8%.

Net interest income/OP came in at Rs 19.0 billion / 13.9 billion in line with our estimates. While the gross / net stage three assets in standalone entity improved to 3.6%/3.2% from 4.0%/3.6% in Q2, GS3 asset ratio in microfinance subsidiary increased from 1.48% in Q2 to 1.88%.

Healthy growth momentum for gold loans coupled with other products i.e. home loan, microfinance, and personal loan, expected to drive 16% compound annual growth rate in consolidated AUM over FY23-26.

Thus, return on asset/ return on equity expected to improve to 5%/ 18% by FY26E. We value Muthoot Finance at ~2.2 times FY26E consolidated book value to arrive at a revised target price of Rs 1,675 (earlier Rs 1, 550), as we roll forward our valuation to FY26 estimates. Maintain 'Buy' rating on the stock.

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