Edelweiss Securities has maintained 'Buy' on Muthoot Finance with target price of Rs 285 as against current market price Rs 177 in its report.
Commenting on the investment rationale Edelweiss said, ''Muthoot Finance's (Muthoot) PAT of Rs 1.65 billion was broadly in line with our estimate. However, the quarter was characterised by companies return to growth path, logging 6% QoQ growth in AUM (at Rs 234 billion). Growth was largely driven by improving volumes, resulting from management's various sales initiatives taken over past few quarters.
NIM improved (16bps QoQ, post 3 quarters of decline), aided by lower funding cost and stable lending yields; 2) GNPLs inched up to 2.19% (versus 1.96% in previous quarter) - however, management highlighted this was technical in nature and expects recovery over ensuing quarters; and (3) focus on curbing costs continued to reap benefits with flat opex growth YoY. Emerging certainty on AUM growth following stabilising gold price, customer acquisition push at branch level and strategic tie-up with Yes Bank will lend fillip to revenues. In light of valuations of 1.1x FY17E BV with RoE generation ability of 17% in FY17E, we maintain 'BUY' with TP of Rs 285.
Muthoot has been reeling under various regulatory pressures in past few quarters. However, with most negatives now waning - most regulatory hurdles are passé (leading to strengthened practices), the RBI is acknowledging the systemic importance of gold loan companies and macros are improving - we expect this space to gather momentum going ahead. We expect the company to be a key beneficiary and bolster its market share, as it is a lead player in the sector (underpinned by sound brand, extensive franchise and superior operations) and level playing field is emerging for all players (LTV at par for all). We maintain 'BUY/SO'.''
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