Kotak Institutional Equities has downgraded Muthoot Finance to Add from Buy and slashed the target price to ₹2,250 from ₹2,400, citing concerns stemming from the Reserve Bank of India’s newly proposed draft guidelines on gold loans. The brokerage has cut its earnings estimates for the company by 10%, anticipating regulatory overhang to impact stock performance in the near term.
The RBI’s draft guidelines, which propose a 75% cap on the loan-to-value (LTV) ratio for gold loans, a maximum tenure of 12 months for bullet repayment schemes, and the requirement for NBFCs to cap their gold loan portfolios, could significantly affect growth and profitability.
Kotak believes the potential changes may lead to reduced internal rate of return (IRR) on loans and increased competition from moneylenders offering informal credit. The firm is moderating its growth and margin assumptions as a result, although it remains structurally constructive on the long-term outlook for the gold loan business.
“While we await the final form of the regulation, we believe the current uncertainty may temper stock performance despite the company’s fundamental strengths,” Kotak noted.
Disclaimer: The above views are of the broker’s and not the author or the publication’s. Please make any and every investment decision after consulting your financial advisor.
