Muthoot Finance by IDBI Capital with buy rating with target price of Rs 595.
Buy Report Link below:
Summary
Muthoot Finance reported tad soft Q3FY19, with AUM growth of 15% YoY as against 17% last quarter on account of tighter liquidity condition in the market. NII at Rs10.9bn (flattish YoY) and PAT at Rs4.9bn (growth of 1% YoY) are both 6% below our expectations. Stage III loan assets are flattish sequentially at 2.0%. All the subsidiaries are witnessing healthy traction, accounting for 11% of the overall loan book. We have cut our earnings estimates by 2%/4% for FY19/20 respectively. We marginally cut our TP to Rs595 (Rs600 earlier), valuing it at 2.25x P/ABV FY20 and retaining BUY rating.
Outlook
With the impact of demonetization behind, favorable regulatory requirement and stable gold prices, the management is targeting a healthy growth going forward. Strong branding (CSK in IPL and Amitabh Bachchan) has a positive impact on the growth. Its strategy of collecting interest on a regular basis has helped improvement in net lending yields and kept credit cost at lower levels. As it utilizes excess provision created under earlier accounting standard, credit cost for next 2 years will be miniscule. Tier I capital of 25% ensures unhindered growth along with no need to raise capital for at least next two years. It has the potential to deliver RoA ~5% and RoE ~20%-22% on a consistent basis.
