Muthoot Finance share price: why this stock fell 11% today; fresh targets

Muthoot Finance Ltd shares tanked 11 per cent in Monday's trade after the gold loan financier reported a softer-than-expected June quarter performance. Its standalone asset under management (AUM) growth moderated to 43 per cent YoY and 6 per cent QoQ, reflecting the impact of declining gold prices, Nuvama Institutional Equities said.This brokerage noted that Muthoot Finance's ne interest margin (NIM) declined 297 basis points quarter-on-quarter (QoQ) to 10.4 per cent, leading to a 17 per cent miss on profit after tax.

"Stage-3 assets improved 11bp QoQ to 2.5 per cent, but we believe that aggressive growth practices by competition, change in regulations and falling gold prices call for caution," Nuvama said as it trimmed its target on the stock to Rs 3,300 from Rs 3,325 earlier. With gold prices declining, Nuvama expects Muthoot's standalone return on asset (RoA) to normalise to 5.3–4.8 per cent from a high of 6.7 per cent led by lower growth/margins.

The stock fell 11.31 per cent to hit a low of Rs 2,767 apiece on BSE. This took Muthoot Finance's year-to-date fall to 26.19 per cent.

Among brokerages, the highest target on the stock stands at Rs 4,500 by Bernstein. 360 One Capital has a target as low as Rs 2,425 on the stock, so far, Bloomberg data compiled by Business Today suggests.

CLSA has a target of Rs 4,000 on Muthoot Finance, Morgan Stanley's target stands at Rs 3,705. Jefferies finds the stock worthy of Rs 3,300 level.

Nirmal Bang Institutional Equities expects loan growth for Muthoot Finance to normalize from the exceptionally strong levels witnessed over the past year, when rising gold prices significantly boosted demand.

This brokerage also sees margins to stabilize broadly around 11 per cent levels, supported by the management's expectation of an 18–18.5 per cent portfolio yield. Asset quality should remain benign and cost discipline is likely to continue, it said.

"Overall, Muthoot should continue to deliver industry-leading profitability of 5.5 per cent ROA (25 per cent ROE). However, with gold prices softening, competitive intensity in the gold loan segment increasing, and valuations already pricing in much of the earnings strength, we recommend HOLD rating with a target price of Rs 3,000," it said.

Muthoot plans to open another 500–600 branches across the group in FY27, with expansion focused on underpenetrated markets. Its Subsidiaries delivered healthy performance in Q1, with Muthoot Money reporting 111 per cent YoY AUM growth and 366 per cent YoY PAT growth, while Belstar returned to profitability as MFI stress eased.

Going forward, the management intends to accelerate secured lending within subsidiaries, particularly through Belstar's expanding gold loan franchise.

"Adoption of 85 per cent LTV product remains limited, with majority customers continuing to borrow at around 75 per cent LTV, limiting incremental portfolio risk," Nuvama said.