Gold loan provider Muthoot Finance’s stock slumps 15%; near-term outlook dull

Shares of gold loan provider Muthoot Finance Ltd. were hammered on Tuesday, in response to the non-banking financial company’s dismal Q1FY23 earnings.

The stock fell nearly 15% on the National Stock Exchange in the opening deals. Among key disappointments were 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, too, fell. Teaser loans weighed on the company’s yields during the quarter. A teaser loan offers lower interest rates for a fixed duration of time.

Despite a 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 AUM on gold loans to start improving in the next few quarters. Also, Muthoot Finance has received approval from the Reserve Bank of India for 150 new branches, to be opened by October, which is likely to aid growth of gold AUM, it said.

Even so, analysts are wary of the company’s near-term performance. “We expect pressure on Muthoot’s earnings to sustain for another quarter,” said analysts at Kotak Institutional Equities. The domestic brokerage house said it will watch for immediate-term impact of withdrawal of teaser scheme on gold loan growth. The worry here is whether the company will be able to retain customers acquired due to the teaser loan scheme, after it withdraws the said rates.

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

On the bright side, there are some tailwinds to the company’s growth, such as the rise in domestic gold prices and new branch additions. But their benefits would reflect only gradually.

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