Hold Muthoot Finance Ltd for the Target Rs.3,478 by Geojit Investments Ltd
Strong Growth Amid Elevated Valuations
Muthoot Finance Ltd., India’s largest NBFC in gold loans by loan portfolio, operates over 7,541 branches nationwide. Besides gold loans, it offers various loans, insurance, money transfer services, and gold coin sales through its subsidiaries
* In Q3FY26, consolidated loan AUM rose 48% YoY to Rs. 1,64,720cr., led by 51% YoY growth in standalone gold loans, which now comprise 89% of total AUM at Rs. 1,47,552 cr.
* Gold loan yield stood at 20.34% in Q3FY26, supported by one-off NPA recoveries. On a normalized basis, yields are expected to remain in the 18.5–19.0% range. Meanwhile, management has raised FY26 gold loan growth guidance to 45%.
* Standalone profit rose sharply by 91% YoY to Rs. 7,048cr in 9MFY26, supported by improved operational efficiency and strong margins. At the same time, asset quality strengthened, with the Stage III ratio in the gold loan portfolio declining to 1.58% in Q3FY26 from 4.22% a year earlier, driven by customer-led repayments under flexible repayment options.
* Muthoot Finance holds 205 tonnes of gold as collateral, slightly lower than 209 tonnes in the previous quarter, with an average portfolio LTV of 57%. Although fluctuations in gold prices remain a key risk, the company maintains a comfortable margin of safety of about 43%, which helps limit potential credit risk
Outlook & Valuation
We maintain a cautious outlook on Muthoot Finance despite its strong Q3FY26 performance, where results exceeded estimates, supported by record profit growth and continued AUM expansion. However, the stock has recently faced pressure amid volatility in gold prices and a slight decline in gold collateral tonnage. Additionally, the stock is currently trading at a historical premium to its long-term average, indicating that the recent price correction has already factored in much of the quarterly positives. Nevertheless, improving visibility in loan book growth and stabilizing asset quality remain supportive. Considering these factors, we upgrade our rating to Hold with a revised target price of Rs.3,478, based on 2.4x FY28E BVPS.
Key concall highlights
* Recent regulatory developments by the RBI include draft norms that allow branch expansion without prior approval, retain the 75% LTV cap on gold loans, permit the use of gold as collateral for business loans, and enable lending against silver from April 1, 2026. However, Muthoot Finance has not yet taken a decision on offering loans against silver. Meanwhile, the company continues to face pressure on its cost of funds, as banks have yet to transmit benchmark rate cuts through reductions in MCLR, limiting the benefit of lower interest rates.
* The microfinance subsidiary, Belstar, saw continued asset-quality stress, with Stage III at 4.93%, and PAT reported a loss of Rs.316cr for Q3 (Rs.1,086cr loss for 9M). Management indicates ongoing recovery and quality enhancement efforts.
* Muthoot Homefin maintained steady growth with loan AUM at Rs.33,802cr and Stage III at 2.32%, showing stable credit performance. Capital adequacy remained strong at 20.27%, comfortably above regulatory norms.
* Muthoot Money Ltd. delivered a sharp turnaround, reporting Rs.972cr PAT in Q3FY26 (Rs.2,034cr for 9M) and Stage III at 0.60%, remaining one of the bestperforming subsidiaries, driven by a strategic shift to gold loans. Asia Asset Finance posted LKR 28cr PAT in Q3 (and LKR 68cr for 9M) with continued portfolio expansion. Loan AUM stands at LKR 4,224cr.
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