Muthoot Finance hits 52-week high; surges 25% in two months

The stock hit a fresh 52-week high of Rs 512, was 3% away from its record high level of Rs 526 touched on September 13, 2017, on the BSE in intra-day trade.

Shares of gold loan company Muthoot Finance hit a fresh 52-week high of Rs 512 apiece, up 1.4% on Monday. The stock has surged 25% in the past two months, on improved assets quality and expectations of healthy growth going forward. The stock is 3% away from its record high level of Rs 526 touched on September 13, 2017, on the BSE in intra-day trade.

Muthoot Finance had reported highest ever quarterly accretion in gold loans in the September quarter (Q2FY19), resulting in an all-time high loan book as well as gold stock under possession. The company’s Q2FY19 has seen a revival in the momentum of its core business with gold loan book growth of 17% YoY as against 11% during the last quarter. The subsidiaries too witnessed positive trends in growth & asset quality.

“With the impact of demonetisation behind, favorable regulatory requirement and stable gold prices, the management is targeting a healthy growth going forward." according to analysts at IDBI Capital.

Strong branding (CSK in IPL and Amitabh Bachchan) has a positive impact on the growth. Its strategy of collecting interest on a regular basis has helped improvement in net lending yields and kept credit cost at lower levels. As it utilizes excess provision created under earlier accounting standard, credit cost for next 2 years will be miniscule,” the brokerage said.

The brokerage firm maintains ‘buy’ rating on the stock with target price of Rs 600 per share.

“Gold loan growth for Muthoot Finance has been much better than its competitors. In a high fixed cost business like gold loans, growth brings in a lot of operating leverage in the subsequent quarters. We expect gold loan business to grow at 10-15% CAGR and generate 5%+ RoEs for medium term. The non-gold businesses provide strong runway for growth,” analysts at Antique Stock Broking said in Q2FY19 result review with ‘buy’ rating on the stock and target price of Rs 583 per share.