Gold Finance cos may be value traps if loans don’t pick up: Investec

Investec Securities has downgraded shares of Muthoot Finance and Manappuram Finance to ‘hold’ from ‘buy’, viewing them as value traps in the context of weak volume growth and increased competition, despite valuations being at near five-year lows, reports Our Bureau.

The brokerage has slashed the target price on Manappuram to 100 from 210. It has lowered the target price on Muthoot Finance to 1,050 from 1,620. “Growth outlook is weak and given the dividend payout cap of 50%, incremental capital will be deployed at a lower return on equity,” said Investec Securities.

“We view gold financiers as value traps if loan growth does not pick up,” it said. Investec said gold prices and ticket sizes have been the drivers of loan growth but customer base growth has remained weak. Moreover, the competition remains intense with commentary from leading banks suggesting that their focus on gold loans will remain in FY23.