Jefferies has reaffirmed its ‘Buy’ rating on Muthoot Finance with a target price of ₹2,660, citing a stronger-than-expected Q4FY25 performance led by controlled credit costs, strong AUM growth, and a supportive gold price environment. The brokerage sees the company as a resilient asset-quality play, particularly well-positioned for the anticipated interest rate cut cycle.
Muthoot Finance reported a 42.7% year-on-year jump in net profit to ₹1,508 crore in Q4FY25, compared to ₹1,056.3 crore in the same quarter last year. Net interest income (NII) surged 36% to ₹2,904 crore, up from ₹2,135 crore YoY. Jefferies noted that the bottom-line beat — about 5% ahead of its estimate — was largely due to lower-than-expected provisioning.
AUM growth strong, margins ease slightly
The brokerage highlighted that assets under management (AUM) grew 43% YoY, significantly outpacing historical averages, supported by rising demand and higher gold valuations. However, net interest margins (NIMs) fell sequentially — a reflection of cost-of-funds dynamics and competitive lending pressures.
Standalone asset quality showed improvement, with gross non-performing assets (GNPA) and credit costs both falling QoQ. However, Jefferies flagged a rise in GNPA in Muthoot’s microfinance subsidiary, suggesting that while the core gold loan book remains resilient, peripheral lending remains exposed to stress pockets.
Outlook: Gold prices, rate cuts to aid growth
With gold prices rising sharply during Q4 (+17% QoQ), Jefferies believes the firm remains well cushioned against any regulatory tightening — such as potential tweaks to loan-to-value (LTV) norms — which could otherwise pose challenges to growth.
Looking ahead, Jefferies projects a 21% profit CAGR and an ROE of 20% over FY25–27, driven by steady asset growth, limited credit losses, and benign funding conditions. “We think Muthoot remains one of the more defensive NBFCs in terms of asset quality, with gold prices providing a strong counter-cyclical hedge,” the note said.
Disclaimer: This article is based on the brokerage report by Jefferies. It does not constitute investment advice. Investors are advised to consult their financial advisors before making any investment decisions.
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