On Wednesday, Jefferies, a global financial services company, initiated coverage on shares of Muthoot Finance Ltd (MUTH:IN), the largest gold loan non-banking financial company (NBFC) in India. The firm assigned a Buy rating to the company's stock with a price target of INR2,220.00, indicating confidence in the company's financial prospects.
Muthoot Finance, renowned for its strong brand and healthy operating metrics, has a significant portion of its consolidated assets under management (AUM) tied to gold loans, accounting for 82%.
Jefferies predicts that the company will benefit from an improving environment for gold financing. They forecast a compound annual growth rate (CAGR) of 17% in loans for the financial years ending in 2025, an increase from the 13% CAGR observed from 2021 to 2024.
The anticipated loan growth is expected to result in a 19% earnings per share (EPS) CAGR and maintain a return on equity (ROE) of over 19% during the financial years from 2024 to 2027.
Jefferies' sum-of-the-parts (SOTP) valuation approach leads to the price target of INR2,220.00, which values Muthoot Finance's standalone business at 2.6 times its projected book value for June 2026. This valuation is broadly in line with the company's five-year average price-to-book (P/B) ratio.
The positive outlook from Jefferies reflects the firm's expectations of robust growth for Muthoot Finance in the coming years. The company's focus on gold loans as a core part of its business model is seen as a key driver for its future earnings and stock performance.
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