Muthoot Finance shares up 4% after strong Q4 results; should you buy the stock?

Muthoot Finance share price rallied over 4% on Friday after the gold loan provider reported strong earnings for the quarter ended March 2024. Muthoot Finance shares spiked as much as 4.3% to 1,745.20 apiece on the BSE.

India’s largest gold loan provider Muthoot Finance reported a standalone net profit of 1,056 crore in the fourth quarter of FY24, registering a growth of 17% from 903 crore in the year-ago period, led by strong demand for loans amid rising gold prices. 

The company’s revenue from operations rose 8% to 3,409 crore in Q4FY24 from 3,168 crore, year-on-year (YoY). Interest income increased 20% to 3,358 crore.

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Net interest margin (NIM) expanded by 75 bps QoQ to 11.9% and the gold tonnage rose by 2% QoQ to 188 tons.

“Muthoot Finance reported a healthy gold loan growth, aided by gold tonnage growth and stronger customer additions. We expect gold loan growth to remain buoyant in the near term, aided by higher gold prices and levers on LTV (~63% as of Mar’24). Lower competitive intensity due to the ban on gold lending on IIFL Finance will benefit other gold loan players, including Muthoot Finance,” brokerage firm Motilal Oswal Financial Services said. 

If and when the gold loan ban on IIFL Finance is revoked, it expects higher competitive intensity to again get restored in the gold loan ecosystem. 

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The brokerage firm increased its FY25 and FY26 earnings per share (EPS) estimates by 5% and 4% to factor in higher gold loan growth and higher other income. 

Muthoot Finance shares now trade at 2.1x FY26E P/BV, and although the brokerage firm expects gold loan growth to remain buoyant in the near term, it believes the current valuations largely factor in the positives.

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Motilal Oswal maintained its ‘Neutral’ rating and raised Muthoot Finance share price target to 1,620 apiece.

At 1:50 pm, Muthoot Finance shares were trading 1.33% higher at 1,695.60 apiece on the BSE. 

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Published: 31 May 2024, 01:54 PM IST

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