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Muthoot Finance Shares Dip on Broker Downgrades
3 Aug
Summary
- Several brokerages downgraded Muthoot Finance following June quarter results.
- Margin compression due to competition and yield normalization cited as key concerns.
- Despite downgrades, one firm maintains an 'outperform' rating with a higher target.
Muthoot Finance experienced significant analyst attention following its June quarter financial results, prompting multiple downgrades. Jefferies moved the stock to 'hold' from 'buy,' citing margin compression due to normalized yields, lower rate slab rollovers, and competitive price cuts. Jefferies also reduced EPS estimates for FY27 and FY28, projecting only 5% EPS growth for the current year, although it noted current valuations might offer some support.
Investec downgraded Muthoot Finance to 'sell' and Nirmal Bang to 'hold,' both cutting their respective price targets. These moves reflect concerns over the company's earnings trajectory despite stable asset quality and healthy gold loan AUM growth of 44% year-on-year. The June quarter was marked by a sharp 300 basis point contraction in margins.
Conversely, Bernstein maintained its 'outperform' rating with a price target of ₹4,500, acknowledging strong AUM growth but also noting the margin contraction. CLSA retained an 'accumulate' rating, lowering its target to ₹4,000, and viewed the 2.5% sequential customer growth positively, suggesting a renewed focus on growth over profitability.
Muthoot Finance's shares closed 4% higher on Friday at ₹3,128.5, though they remain down 18% year-to-date. The company reported a 43% year-on-year rise in standalone AUMs, with gold loan AUMs constituting 95% of this total.
