Manappuram Finance, Muthoot Finance shares: Jefferies gives 'Buy' call on this gold-loan stock, sees 34% upside

Jefferies has retained a 'Buy' rating on Manappuram Finance Ltd while maintaining a 'Hold' call on Muthoot Finance Ltd, as competition in the gold-loan market is expected to intensify with new players rapidly expanding their branch networks. The brokerage said gold loan growth remains strong, although it is normalising as gold-price growth stabilises.

Retail loans against gold jewellery grew 80 per cent YoY as of July 2026, while loans against gold including agricultural gold loans rose 50 per cent YoY to Rs 18.6 lakh crore, according to Jefferies. The brokerage said higher gold prices and a greater willingness among households to monetise their gold have been key drivers of the growth.

However, competition is rising. Gold loans of new entrants grew 2.5 times YoY to Rs 61,900 crore as of June 2026, while their share of retail gold loans increased to 7.6 per cent. Jefferies estimates that new players could add around 3,700 branches in FY27, compared with about 1,500 in FY26. This would be equivalent to around 20 per cent of the branch network of the top four gold-loan NBFCs.

Bajaj Finance is emerging as a particularly aggressive new entrant. Its gold-loan assets under management stood at Rs 21,200 crore in June 2026, and Jefferies expects it to account for around 35 per cent of the planned branch additions by major new entrants in FY27. Bajaj Finance is targeting gold-loan AUM of Rs 30,000 crore by FY27 and plans to add around 110 branches a month.

The brokerage noted that competition is also spreading beyond traditional southern markets. Tamil Nadu, Andhra Pradesh, Karnataka and Telangana account for around 70 per cent of gold loans, but origination growth is increasingly being driven by states such as Uttar Pradesh, Rajasthan and Gujarat. New entrants are focusing on northern, western and central India, including Rajasthan, Gujarat, Uttar Pradesh, Maharashtra and Madhya Pradesh.

Manappuram Finance

Jefferies retained its Buy rating on Manappuram Finance Ltd, saying its smaller base should allow it to deliver stronger customer additions and AUM growth. The brokerage expects net interest margins to stabilise, while operating leverage and lower credit costs could drive a 2.8-fold increase in profit after tax between FY26 and FY28 estimates, with returns improving during the period.

The brokerage also sees Manappuram's valuation as reasonable at 1.5 times FY1 estimates book value. Its target price for the stock is Rs 430, implying around 34 per cent upside from the September 9 closing price used in the report.

Manappuram has also been expanding its gold-loan network. Jefferies said the company had 4,054 branches as of June 2026 and plans to open another 500 gold-loan branches in FY27. Around 60 per cent of the planned expansion is expected across South and Central India, including Maharashtra, while 38 per cent is planned across eastern states such as Bihar, West Bengal and Odisha.

Muthoot Finance

For Muthoot Finance Ltd, Jefferies retained a Hold rating. The brokerage described Muthoot as having the strongest gold-loan franchise and said the company offers greater leverage to gold prices. However, it expects the company's larger existing base and rising competition to weigh on growth if gold prices remain range-bound.

Jefferies said Muthoot has expanded its product offerings, including products across different ticket sizes and loan-to-value ratios, as well as balance-transfer products, to defend yields and retain customers amid increasing competition.

Muthoot had 6,127 branches as of June 2026 and is targeting another 500-600 branches in FY27. Its expansion includes cities such as Lucknow, Jaipur, Delhi and Jalandhar.

Jefferies' target price for Muthoot Finance is Rs 3,300, implying around 17 per cent upside from the September 9 closing price. The brokerage said the valuation at 2.1 times FY1 estimated book value, around its five-year average, appears reasonable for a business capable of generating a 25 per cent return on equity.

Gold prices key driver

For both companies, gold prices remain the biggest swing factor for loan growth. Jefferies said higher gold prices can increase the value of collateral held by borrowers and reduce some competitive pressure. However, gold prices had fallen 6 per cent after a 15 per cent rally in August, with higher US yields, hawkish Federal Reserve comments and stronger US payroll data acting as near-term headwinds.