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Motilal Oswal
Muthoot Fin (Buy)
CMP: ₹332
Target: ₹409
Muthoot Finance’s 3QFY17 PAT grew 56 per cent y-o-y (but declined 2 per cent q-o-q) to ₹291 crore , largely led by lower-than-expected employee and provisioning expenses. Other items were largely in line with estimates.
Assets under management grew 8 per cent y-o-y (but declined 2 per cent q-o-q) to ₹26,900 crore. Having grown only 11 per cent over FY16, Muthoot cut its FY17 AUM growth guidance to 14-15 per cent from 18-20 per cent.
Calculated margin contracted 90 bps q-o-q to 11 per cent. This was on account of about 100 bps q-o-q yield decline to 19.7 per cent. We attribute this to slower gold auctions during the quarter (₹120 crore versus ₹140 crore in 2Q) as well as impact of interest reversals.
Valuation and view: Given stable regulatory regime, benign competition and supportive gold prices, we expect growth to resume, with AUM CAGR of +15 per cent over the next 2-3 years, barring the temporary impact of demonetisation. Given that significant portion of its operating costs is fixed, growth recovery will ensure optimum utilisation of existing infrastructure, boosting return ratios.
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