Buy Muthoot Finance, target Rs 485: Nirmal Bang Institutional Equities

Nirmal Bang Institutional Equities has a buy call on Muthoot Finance Ltd. with a target price of Rs 485. The current market price of Muthoot Finance Ltd. is Rs 396.9 Time period given by the brokerage is Two Year when Muthoot Finance Ltd. price can reach defined target. Muthoot Finance Ltd., incorporated in 1997, is a large-cap company with a market cap of Rs 15877.64 crore.

Investment rationale by Nirmal Bang

Muthoot Finance (MFL) reported its 4QFY18 results with the key strategic pointers being: (1) Improved on-ground traction for gold lending and marketing initiatives to drive gold AUM growth. (2) High headline NPA ratio only a consequence of allowing borrowers more time (see conference-call highlights below; see initiating coverage report here). Per se, on the results front, MFL posted NII decline of 7% YoY to Rs10,728mn, PPOP decline of 5% YoY to Rs7,922mn and PAT growth of 40% YoY to Rs4,514mn. We have marginally modified our estimates for FY18/FY19 and retained Buy rating on MFL, revising our target price on it to Rs485 (from Rs471 earlier) and valuing the stock at 1.75x FY20E P/BV.