Muthoot Finance shares fall 15%; Near-term outlook sluggish

The stock fell nearly 15% on the National Stock Exchange in opening deals. Among the major disappointments was a 17.4% year-on-year decline in net profit due to weakness in its core gold loan business. The Gold Loan segment contributes more than 90% to its overall assets under management (AUM). Sequentially, its customer base also declined. Teaser loans had an impact on the company’s returns during the quarter. A teaser loan offers a low interest rate for a specified period.

Despite the poor Q1, the company’s management has maintained its 10-15% AUM growth guidance for FY23. In a post-earnings conference call, the management said it expects the AUM on gold loans to start improving over the next few quarters. In addition, Muthoot Finance has received approval from Reserve Bank of India to open 150 new branches by October, which is likely to help in growth of gold AUM.

Still, analysts are wary of the company’s near-term performance. “We expect Muthoot earnings to remain under pressure till Q2,” said analysts at Kotak Institutional Equities. The domestic brokerage house said it would keep an eye on the immediate impact of the withdrawal of the teaser scheme on gold loan growth. The concern here is whether the company will be able to retain the customers acquired on account of the teaser loan scheme after withdrawing the said rates.

“Even as we build in sequentially positive growth in the remaining quarters of FY23, we believe annual growth is likely to be at the low end of management guidance,” said analysts at Nirmal Bang Institutional Equities. Net new customer acquisition will be a key monitorable in the coming quarters and will also be the most important determinant of the company’s gold loan growth trajectory, a report said.

On the bright side, there are some tailwinds for the company’s growth, such as a rise in domestic gold prices and new branch growth. But their benefits will be visible only gradually.

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