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Impressive gold loan growth; execution much better than peers

Gold loan AUM grew ~34% YoY; calc. NIM expanded ~5bp QoQ

* Muthoot Finance (MUTH)’s strong operating performance in 3QFY25 was characterized by: 1) strong gold loan growth of ~34% YoY to ~INR930b, without any trade-off in margins; 2) ~5bp QoQ expansion of NIM to ~11.9%; and 3) an increase in gold tonnage by ~2% QoQ to 202 tons.

* MUTH’s 3QFY25 PAT grew 33% YoY and 9% QoQ to ~INR13.6b (in line). Reported RoA/RoE in 3QFY25 was healthy at 5.9%/21%.

* Net total income grew ~42% YoY to ~INR27.8b (~6% beat). Opex grew ~27% YoY to INR7.2b, resulting in a cost-to-income ratio of ~26% (PY: 29%). PPOP grew ~48% YoY to ~INR20.6b (~6% beat). Credit costs stood at ~INR2.1b and translated into annualized credit costs of ~0.9% in 3QFY25. [PY: ~0.1% and PQ: ~0.95%].

* Gold loan growth was supported by growth in gold tonnage (up 2% QoQ), along with an increase in the customer base (up 2% QoQ) to ~6.25m. Gold loan LTV rose ~310bp QoQ to ~66%.

* For FY26, MUTH maintained its conservative guidance of ~15% growth in gold loans. We increase our FY26/FY27 estimates by ~7% each to factor in higher gold loan growth and margins. We model a standalone AUM CAGR of ~20% over FY24-27E. This, we believe, will result in a PAT CAGR of ~22% over this period. We model an RoA/ RoE of ~5.2%/21% for FY27.

* MUTH now trades at 2.2x FY27E P/BV and, in our view, has benefited from the tailwinds of: 1) a sharp rise in gold prices; 2) an improvement in gold loan demand due to the industry-wide rationing in unsecured credit; and c) a lower competitive intensity in gold loans. MUTH is indeed one of the best franchises for gold loans in the country, as is evident from its ability to deliver industry-leading gold loan growth and best-in-class profitability. However, we believe that the positives are already factored in its valuations. We reiterate our Neutral rating with a revised TP of INR2,300 (based on 2.5x Sep’26E P/BV).

Belstar: Sequential decline in AUM; new branches opened in 3QFY25

* MUTH’s microfinance subsidiary, Belstar, reported a ~10% QoQ decline in AUM to ~INR87b. Reported PAT stood at ~INR240m, down ~54% QoQ.

* Asset quality improved, with GS3 declining ~55bp QoQ to ~2.9%. The company views the MFI problem to be a transitory issue and expects the same to be resolved within the next two quarters.

* Belstar opened ~113 new branches in 3QFY25, and its CRAR stood at ~24%.

Highlights from the management commentary

* MUTH does not have any approvals for opening new branches in the listed entity. It has applied to the RBI for permission to open new gold loan branches. Meanwhile, it has started transforming Muthoot Money (earlier a vehicle finance subsidiary) into a gold finance company.

* The company has entered into partnerships with GPay and PhonePe for lead generation in personal loans and LAP Loans.

* There are no regulatory developments on LTV and rollover of loans at maturity. MUTH has not made any significant changes in its operations.

* The company guided for NPAs (Stage 3) to decline by Mar’25.

Valuation and view

* MUTH reported strong gold loan growth, aided by gold tonnage growth and stronger customer additions. However, provisions were slightly higher than expected (primarily due to a continued increase in absolute Stage 3) while NIMs and spreads improved sequentially.

* With a favorable demand outlook for gold loans driven by reduced competition from banks and limited availability of unsecured credit, the company is wellpositioned to maintain its strong loan growth momentum.

* We believe that the positives are already factored in its valuations of 2.2x FY27E P/BV. We reiterate our Neutral rating with a revised TP of INR2,300 (based on 2.5x Sep’26E BVPS).

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