Target: ₹300
CMP: ₹244.80
We believe Muthoot Microfin Ltd’s unique risk assessment model using Equifax, dedicated collections team, risk-based pricing, continued tech integration to lower opex, NAT CAT and death insurance to shield asset quality and strong parentage of Muthoot Pappachan Group with high vintage senior management team represent a compelling opportunity in the MFI space.
MML is the third largest NBFC-MFI in India based on AUM, and the leading MFI in Kerala by market share. We believe that with recent expansion into newer geographies, viz. AP and Telangana (total presence in 19 states), and its efforts to deepen its presence in these geographies, MML has significant potential to drive growth in the near-medium term.
Its risk-based pricing for distinct customer categories empowers MML to offer competitive yields to its clients while its expectation of a ratings upgrade could also offer CoFs tailwinds and, thus, access to other sources of funds. With IRDAI licence, MML has also gained an opportunity to charge commission on insurance products which would add to revenues and opens opportunity to offer insurance products to new customers.
We expect RoA to expand up to 4.8 per cent by FY26 as operating leverage and CoFs benefit plays out. We believe the stock is currently trading at a relatively inexpensive valuation of 1.0x FY26E P/B .