Muthoot Finance hits new high; up 22% within 2 months on strong Q2 results

Since November 18, the market price of Muthoot Finance soared 22 per cent after for FY25 the company revised its gold loan growth guidance upwards to 25 per cent from earlier guidance of 15 per cent.

Shares of Muthoot Finance, India’s largest gold financing company in terms of loan portfolio, hit a new high of Rs 2,177.45, climbing 2 per cent on the BSE in Wednesday’s intra-day trade on expectations of strong earnings growth. The stock of the non-banking finance company is quoting higher for the fifth straight trading day, having rallied 7 per cent during the period. Since April, thus far in the financial year 2024-25, Muthoot Finance share price has zoomed 68 per cent.

 

Within two months, since November 18, the market price of Muthoot Finance has soared 22 per cent after the company revised its gold loan growth guidance for FY25 higher to 25 per cent, from its earlier guidance of 15 per cent. For the first half (April to September) of the financial year (H1FY25), the company’s standalone loan assets under management (AUM) reached a historic high of Rs 90,197 crore, driven by a robust 28 per cent year-on-year (YoY) growth in its core gold loan portfolio.

 

 

The half year under review saw the company disburse its highest-ever gold loans to new customers, at Rs 10,687 crore to 9.66 lakh customers. Among the peer NBFC group, Muthoot Finance has the highest average gold loan AUM per branch, at Rs 17.75 crore.

 

Though personal and home loans will continue to grow, the management's major focus remains on growing the company's gold loan portfolio. The management believes the slowdown in the unsecured personal loan category gives it a good opportunity to grow the gold loan portfolio going ahead.

 

Muthoot Finance's gold AUM growth remains strong backed by high gold prices and moderating competitive intensity. Further, growth guidance has been revised upwards to 25 per cent vs 15 per cent, while the need for the company to watch out for higher credit cost as stage III assets have increased in the last few quarters remains, analysts at IDBI Capital said in the company's results update.

 

The company's management acknowledged that the competitive aggression from banks in gold loans has reduced. Additionally, lower availability of unsecured credit in the form of personal loans/microfinance institution (MFI) loans has resulted in stronger demand for gold loans. It also indicated that some of the fintechs/ NBFCs have calibrated their lending into unsecured loans. This suggests that the strong gold loan demand could sustain in the near-term, Motilal Oswal Financial Services (MOFSL) said in the company's results update.

 

In the brokerage's view, Muthoot Finance has benefited from the tailwinds of a sharp rise in gold prices; an improvement in gold loan demand because of industry-wide rationing in unsecured credit; and a lower competitive intensity in gold loans.  Muthoot Finance is indeed one of the best franchises for gold loans in the country, as is evident from its ability to deliver stronger gold loan growth and best-in-class profitability. However, MOFSL believes that the positives are already factored in its valuations, and the brokerage firm anticipates limited upside catalysts for the stock. Currently, the stock is trading above the target price of Rs 1,815 per share.