Muthoot Finance, Manappuram valuations turn attractive; rising gold prices add to tailwinds, says ICICI Securities

Gold loan companies Muthoot Finance and Manappuram Finance have seen a steady improvement in business with stable yields and growth in Assets Under Management (AUM). This positive trend is expected to receive further boost from the upward trajectory of gold prices and a weaker growth in the unsecured loan segment, analysts said. 

The last three quarters have witnessed a notable recovery in growth as evidenced by the positive quarter-on-quarter (QoQ) growth in gold loan AUM for key players such as Muthoot Finance, Manappuram Finance, and IIFL Finance.

With both Muthoot and Manappuram Finance maintaining their FY24 guidance for substantial gold AUM growth of 15% and 10%, the recent ascent in gold prices further acts as a tailwind.

“Apart from stable competitive and pricing environment, the recent ascent in gold prices (5%/1% in FY24TD/ Q4FY24TD) bodes well for Muthoot and Manappuram’s AUM. Both enjoy a strong correlation between gold loan price and AUM; which should help attain higher AUM growth. Gold loan demand may also find further support amid some pressure observed in unsecured lending,” ICICI Securities said in a report.

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The brokerage firm has upgraded its rating on Muthoot Finance to ‘Buy’ from ‘Add’ earlier with an unchanged target price of ₹1,605 per share. It has maintained a ‘Buy’ rating on Manappuram Finance and raised the target price to ₹220 per share from ₹190 earlier. 

However, it sees possible resurfacing of competitive intensity pressuring growth or net interest margins (NIM) as a key risk in gold while worsening asset quality is the risk in the non-gold segment.

Muthoot Finance

Muthoot Finance’s key business drivers ahead include managing NIMs against rising Cost of Funds (CoF) and growing tonnage/new clients; driving full benefit of branch expansions; growth in non-gold loan business and managing asset quality in non-gold, especially MFI business, ICICI Securities said.

It factors in gold AUM growth of 14% in FY24 and FY25 each and 13% in FY26 with yields of ~18%. Its target price is based on 1.9x FY26E P/B for the standalone business, 1.2x FY26E P/B for Belstar (MFI subsidiary), and 1x for others.

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Manappuram Finance

Stabilisation in gold loan yield, a turnaround in the MFI business, and traction in other segments such as housing and MSME are noteworthy developments in Manappuram Finance over the last 12 months, ICICI Securities said.

Gold loan’s growth vs. yield balance appears stable and better-than-peers while consolidated growth and RoE are close to 20%. Manappuram is also relatively less impacted by elevated capital risk weights, it added.

The brokerage firm believes valuation remains attractive, trading at 1.2x FY26E consolidated P/B. It added that Manappuram’s strategic focus on business diversification will likely fortify the business and offer a stronger value proposition.

At 12:05 pm, Muthoot Finance shares were trading 0.01% higher at ₹1,391.05, while Manappuram Finance shares were trading 0.46% higher at ₹174.85 apiece on the BSE. 

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