Shares of Muthoot Finance have jumped 7% in the last five trading sessions, against a decline of around 0.3% in the benchmark BSE Sensex index. National brokerage Motilal Oswal is bullish on financial stocks and is its top pick for CY22 in the NBFC lending space.
“Muhoot ticks all the right boxes, such as a strong track record of executive execution and training the next generation of the family to take on leadership roles in the future, strong brand presence and deep penetration , which builds client confidence in the franchise, robust risk management control and processes to further develop the operationally intensive gold lending business,” the rating states. purchase on Muthoot Finance shares with a target price of ₹1,750 each.
The AA+ credit rating and hence lower cost of borrowing will enable it to offer competitive interest rates to customers, and the ability to continue to improve operational efficiency can lead to 15% AUM and PAT CAGR on FY22-24E, add note.
“Over the past five years, Muthoot Finance has shown improved efficiency, with AUM per branch increasing to approximately ₹110m in FY21 compared to ~INR 60m in FY16. This operational efficiency pull resulted in higher revenue growth (vs. asset growth under management). We model a compound annual growth rate (CAGR) PAT of 15% in fiscal years 22-24E and a RoA/RoE of 6%/22% in fiscal year 24E,” the note states.
In addition, management has built in adequate collateral through appropriate duration and LTV combinations (average duration of gold loans is in the range of six to nine months), which protects against significant volatility in gold price, added Motilal Oswal.
The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.
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