Muthoot Finance’s share price falls more than 7% as Q2 results miss estimates; Should you buy it?

Shares of Muthoot Financial fell more than 7% in early trade on Friday after the company’s September quarter results missed analysts’ estimates. Mutt Finance shares fell as much as 7.31 percent 1.217.05 on BSE.

Gold financing company Mutt Finance posted a lower-than-expected rise in net profit in the second quarter, hurt by higher financing costs. In Q2FY24, the company’s net profit grew to 14.3%. 991 crore from 867 crore in the previous quarter.

In the second quarter, the company’s net interest income (NII) grew by 18.2%. 1,858.4 crore from 1,572 crores, YoY

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The Kerala-based company’s finance costs grew by more than 28%, pushing total costs up nearly 30%. 1,743 crores.

NBFCs have said that their loan assets are frozen 69,002 crore as compared to H1FY24 57,230 crore in H1FY23, registering a growth of 21% YoY.

Mutt Financial’s Q2FY24 earnings fell 6% to consensus on Bituah Leumi.

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Brokerage company Nuvama Institutional Shares Mutt including the first sale of ARC 7 billion, AUM grew 3% QoQ and 21% YoY, below 7% QoQ and the estimate of 5%.

“Spread decreased to 9.19% from 9.67% QoQ. NPLs increased sharply by 20% QoQ. Muthoot sold NPLs 7 billion will be paid to ARC in the same manner to avoid bidding as a customer-friendly policy,” Nuvama said.

The broker reiterated its ‘reduce’ rating on the stock with an unchanged target price 1,200 per share to be customer-friendly amid intense competition, Mutt Financial is under pressure to reduce production and introduce more loans.

He sees competition intensifying as banks slow their growth in unsecured loans in favor of high-yield secured loans.

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Kotak Institutional Shares revised its estimates by 1-6% to reflect lower net interest margin (NIM) and slightly higher borrowing costs.

“In 2Q and 3Q, we are projecting higher funding costs to reflect further incremental growth. Similarly, we will adjust products as we recognize volatility. The business will continue to deliver mid-teens (15%) AUM CAGR, with revenue CAGR of 18%. Gold loans will continue to be a unique business and “We continue to believe that peers are yet to test the gold price correction phase. In the near term, the gold price rally will start on a positive note, with increasing NPL concerns,” Kotak Institutional Shares said.

The brokerage has raised its target price with an ‘Add’ call on the stock. 1,500 per share from 1,475 earlier.

At 9:55 am, shares of Muthoot Finance were trading 5.07 percent lower. 1,246.55 on the BSE.

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