The shares of this gold lender are skyrocketing, what’s the trigger?
Muthoot Finance shares are skyrocketing. In trading Thursday, the title was up 8.21% in trading.
The main trigger for the action was the strong figures released by the gold lending company for the quarter ending March 31, 2021. The company’s net profits rose 22%, while assets under management of Muthoot Finance also surprised positively.
Brokerage firm Motilal Oswal quickly increased its estimate of EPS for fiscal year 22E / 23E by 3-4%. “We maintain our buy rating on Muthoot Finance shares with a target price of Rs 1,725 per share (3x FY23E BVPS), the brokerage firm said.
Muthoot Finance shares were last seen at Rs 1,525, up around 8.50% from the previous day’s close.
Strong loan growth, despite falling gold prices, was the main surprise in the last quarter of fiscal 2021. Gold loan assets under management at Muthoot Finance increased 4% QoQ to Rs 526 billion (v / s Motilal Oswal’s estimate of a 3% QoQ drop), driven by a 3% growth in tonnage to 171 metric tonnes.
Management has guided a 15% growth in assets under management during FY22. Interestingly, Muthoot Finance’s credit rating has also been upgraded to AA +.
The company is expected to continue to maintain excess liquidity on its balance sheet.
Why Are Gold Loan Companies In An Ideal Position?
Gold lending companies are in a very favorable position as the wave of Covid-19 appears to have helped some of these companies. Those who lost their jobs because of the wave pledged gold for easy financing. In fact, gold loans can be obtained in 30 minutes flat, by simply pledging the gold and carrying your aadhaar card with you.
The interest rates are much better than personal loans. This has helped companies like Muthoot Finance grow at a breakneck pace in recent years. Interest rates are also low right now, which is another boon for investors.
So, low interest rates, absolute security in the form of pledged gold, and a select population that is cash-strapped due to covid-19, have put some of these companies in an ideal situation.
Although we have pointed out that the stock is on the rise, we are in no way suggesting to buy. These are just the facts that led to the stock boom, which we have highlighted. Right now, with several stocks hitting the cap, it would not be advisable to buy at any price.
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Article first published: Thursday, June 3, 2021, 10:31 a.m. [IST]