Shares of Muthoot Finance have surged 7% in the last five trading sessions as compared to about 0.3% fall in benchmark BSE Sensex. Domestic brokerage house Motilal Oswal is bullish on the financial stock and is its top pick for CY22 in the NBFC lending space.
“Muthoot ticks all the right boxes like strong execution track record of the management and the next generation of the family being groomed to take up leadership positions in the future, strong brand presence and deep penetration, which enhances customer confidence in the franchise, robust risk management control and processes to further scale up the operationally intensive Gold Lending business,” the note stated. The brokerage firm has Buy rating on Muthoot Finance shares with a target price of ₹1,750 apiece.
The credit rating of AA+ and consequently lower cost of borrowings will enable it to offer competitive interest rates to customers, and ability to keep driving operating efficiencies can lead to 15% AUM and PAT CAGR over FY22-24E, the note added.
“Over the past five years, Muthoot Finance has exhibited an improvement in efficiency, with AUM per branch rising to around ₹110 million in FY21 from ~INR60m in FY16. This traction in operating efficiency has led to higher growth in revenue (relative to AUM growth). We model in 15% PAT compound annual growth rate (CAGR) over FY22-24E and a RoA/RoE of 6%/22% in FY24E,” the note stated.
Further, the management has built in adequate safeguards through appropriate combinations of tenure and LTV (average Gold loan tenure is in the six-to-nine months range), which protects it against any significant volatility in gold prices, Motilal Oswal added.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.