Muthoot Finance Ltd. share price target

Will continue to stand tall despite the many challengers Muthoot Finance (MUTH') is our top pick for CY22 in the NBFC Lending space. Our investment idea is premised on our thesis of a structural opportunity in Gold lending as the market pie expands with customers evolving, taboo around Gold loans fading away, and apprehensions regarding Gold loans addressed through customer education. In this report, we list MUTH's competitive strengths vis--vis its peers and some of the challengers like Fintech Gold loan NBFCs. MUTH is well placed to...

underlying asset price fluctuations and flat customer accretion (fresh loans sequential steady traction in tonnage movement. Asset quality marginally deteriorated (Stage 3: 3.82% vs 1.85%: Q2FY22) largely due to higher disbursements in Q3FY21 (when gold prices were at peak) and restructuring....

For MUTH, 3QFY22 was characterized by: a) interest cost savings, which led to an in line PPOP/PAT performance; b) elevated Gold loan auctions of INR28b, which resulted in gold AUM remaining largely flat QoQ, c) stable spreads of 13%, despite an aggressive competitive landscape; d) GS3 increasing by ~200bp QoQ to 3.8%, suggesting that auctions will remain elevated in 4QFY22 as well to pare down GS3 to the management's guided level of 2-3%. We estimate MUTH to deliver a gold loan growth of ~10% in FY22E. However, this incremental growth in 4Q will come at the cost of a minor compression in spreads/margin,...

Q2FY22 saw a good growth traction compared with Q1FY22. Gold loan AUM grew 5% QoQ and 18% YoY to INR54700. Increased QoQ tonnage (178 tonnes), increased share of online gold loan customers (29.4% of total) assisted growth momentum....

Muthoot Finance (MUTH) reported lower growth in gold AUM at 18% YoY vs 29% YoY (Q1FY22). Overall cons. AUM grew by 17% YoY; management maintained the guidance of 15% growth for FY22. Profitability growth was lower at 11% due to higher provisions. NII grew by 14.5% YoY led by decline in margins; while PPoP grew by 17% YoY led by lower operating expenses. Provisions increased by 595% YoY (up 121% QoQ) due to asset quality deterioration. Stage III loan assets increased to 1.9% vs 1.2% QoQ, while Company carries excess provision of Rs2.95bn in balance sheet. We believe that MUTH with ~90% of AUM in the Gold loan portfolio has lower risk of loss of assets versus...