Target: ₹1,220
CMP: ₹1,037.95
Key highlights from our channel checks in Southern India for gold loan NBFCs in general and Muthoot Finance in particular are: a) teaser rates have not gone away – just that the 6.9 per cent teaser rate has been replaced by 9.9 per cent -11.9 per cent teaser rates; banks and gold loan fintechs (despite the recent media coverage on Rupeek) have still not reduced their aggression; gold loan demand was weak in May’22 and redemptions were high because of the wedding season; but the demand has swiftly recovered in the first 10 days of Jun’22 and gives hope to salvage the quarter; Muthoot Finance is re-pricing its teaser rate gold loans disbursed at 6.9 per cent p.a. between Dec’21 and Mar’22 to higher interest rates of 9.9-11.9 per cent, which can have multiple implications with the most obvious being the potential for increase in the portfolio yields of the gold loan book.
We delve deeper into each of these and also highlight a few questions that still remain unanswered.
Our estimates are largely unchanged and we maintain our Buy rating on Muthoot Finance with a target price of of ₹1,220 (based on 2.0x FY24 P/BV).