Shares in Muthoot Finance are soaring. In trading on Thursday, the stock was up a solid 8.21 percent in trading.
The biggest trigger for the stock was the solid numbers reported by the gold lending company for the quarter ended March 31, 2021. The company’s net profit rose a solid 22 percent, while assets under management at Muthoot Finance also surprised positively.
Brokerage firm Motilal Oswal was quick to raise its FY22E/23E EPS estimate by 3-4%. We are maintaining our Buy rating on Muthoot Finance stock with a target price of Rs 1,725 per share (3x FY23E BVPS), the brokerage said.
The shares of Muthoot Finance were last traded at Rs 1,525, up about 8.50 percent from the previous closing days.
Strong loan growth despite falling gold prices was the main surprise in the last quarter of FY 2021. Gold loan assets under management at Muthoot Finance grew 4% qoq to Rs 526 billion (vs. Motilal Oswal’s estimate of a decline of 3 % qoq ), driven by a 3% growth in tonnage to 171 tons.
Management has forecast a 15% growth in assets under management for FY22. Interestingly, Muthoot Finance’s credit rating was also upgraded to AA+.
The company is expected to continue to have excess liquidity on its balance sheet.
Why are gold lending companies in a good place?
Gold lending companies are in a very good position as the Covid-19 wave seems to have helped some of these companies. Those who have been made unemployed by the wave have pledged gold for easy financing. In fact, gold loans can be obtained within 30 minutes, by simply pledging the gold and carrying your aadhaar card with you.
The interest rates are much better than personal loans. This has helped companies like Muthoot Finance grow at a breakneck pace in recent years. Interest rates are also low right now, which is also a boon for investors.
So low interest rates, absolute security in the form of pledged gold and a select population that is cash-strapped by Covid-19 have put some of these companies in a good position.
While we’ve emphasized that the stock is rising, we don’t recommend buying in any way. It’s just the facts that led to the stock’s rise that we pointed out. Right now, with several stocks hitting the roof, it wouldn’t be advisable to buy at any price.
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Story first published: Thursday, June 3, 2021, 10:31 am [IST]
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