Muthoot Finance share price declined more than 7% in early trade on Friday after the company’s September quarter results missed analysts’ estimates. Muthoot Finance shares fell as much as 7.31% to ₹1,217.05 apiece on the BSE.
The gold financing company Muthoot Finance reported a smaller-than-expected rise in its second-quarter net profit, hurt by high finance costs. The company’s net profit in Q2FY24 rose 14.3% to ₹991 crore from ₹867 crore in the year-ago quarter.
The company’s net interest income (NII) during the second quarter of FY24 increased 18.2% to ₹1,858.4 crore from ₹1,572 crore, YoY.
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The Kerala-based company’s finance costs rose by more than 28%, taking total expenses nearly 30% higher to ₹1,743 crore.
The NBFC said its loan assets stood at ₹69,002 crore in H1FY24 as compared to ₹57,230 crore in H1FY23, registering a growth of 21% YoY.
Muthoot Finance’s Q2FY24 earnings undershot consensus by 6% due to a miss on NII.
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Brokerage firm Nuvama Institutional Equities said that including Muthoot’s first-ever ARC sale of ₹7 billion, AUM grew 3% QoQ and 21% YoY, lower than 7% QoQ and its estimate of 5%.
“The spread declined to 9.19% from 9.67% QoQ. NPLs rose sharply by 20% QoQ. Muthoot sold NPLs of ₹7 billion to an ARC on a par to avoid auctioning as a customer friendly policy,” Nuvama noted.
The brokerage reiterated its ‘Reduce’ rating on the stock with an unchanged target price of ₹1,200 per share as it believes Muthoot Finance is under pressure to lower yields and recognise more non-performing loans (NPLs) in order to be customer friendly amid higher competition.
It sees competition intensifying as banks scale down growth in unsecured loans in favour of higher-yielding secured loans.
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Kotak Institutional Equities revised its estimate down by 1-6% to reflect lower net interest margin (NIM) and marginally higher credit cost.
“We are modeling higher funding costs to reflect a rise in 2Q and further inch up in 3Q; we tweak down yields as well, even as we acknowledge volatility in the same. Business will continue to deliver mid-teen (15%) AUM CAGR, with an 18% earnings CAGR. We continue to believe that gold loans remain a specialized business and peers are yet to be tested in the gold price correction phase. In the immediate term, the gold price rally will augur well, with lingering concerns of an NPL rise,” Kotak Institutional Equities said.
The brokerage firm retained its ‘Add’ call on the stock and raised the target price to ₹1,500 per share from ₹1,475 earlier.
At 9:55 am, Muthoot Finance shares were trading 5.07% lower at ₹1,246.55 apiece on the BSE.
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