Shares of Muthoot Finance Ltd. experienced a significant drop of 11.31% in Monday's trading, hitting a low of Rs 2,767 apiece on the BSE. This decline follows the gold loan financier's announcement of a weaker-than-expected performance for the June quarter.
Key factors contributing to the stock's fall include a moderation in standalone asset under management (AUM) growth, which stood at 43% year-on-year and 6% quarter-on-quarter. Nuvama Institutional Equities attributed this slowdown to the impact of declining gold prices.
Profitability and Analyst Outlook
The company's net interest margin (NIM) also saw a notable decline, falling 297 basis points quarter-on-quarter to 10.4%. This contributed to a 17% miss on profit after tax compared to analyst expectations.
Nuvama Institutional Equities has trimmed its target price for Muthoot Finance to Rs 3,300 from an earlier Rs 3,325. The brokerage firm highlighted concerns over aggressive competitive practices, potential regulatory changes, and continued falling gold prices. Nuvama anticipates Muthoot's standalone return on asset (RoA) to normalize to 5.3–4.8% from a high of 6.7% due to lower growth and margins.
Nirmal Bang Institutional Equities echoed similar sentiments, expecting loan growth to normalize from the exceptionally strong levels observed over the past year, which were largely fueled by rising gold prices. While they foresee margins stabilizing around 11% and asset quality remaining benign, they recommend a 'HOLD' rating with a target price of Rs 3,000. Their rationale is based on softening gold prices, increasing competitive intensity in the gold loan segment, and current valuations already pricing in much of the company's earnings strength.
Future Plans and Subsidiary Performance
Despite the current challenges, Muthoot Finance plans to expand its footprint by opening another 500–600 branches across the group in FY27, with a strategic focus on underpenetrated markets.
The company's subsidiaries delivered healthy performance in Q1. Muthoot Money reported 111% year-on-year AUM growth and 366% year-on-year PAT growth, while Belstar returned to profitability as microfinance sector stress eased. The management intends to accelerate secured lending within its subsidiaries, particularly leveraging Belstar's expanding gold loan franchise.
Nuvama also noted that the adoption of the 85% Loan-to-Value (LTV) product remains limited, with the majority of customers continuing to borrow at around 75% LTV, which helps to limit incremental portfolio risk for the company.