Morgan Stanley has maintained its ‘Equal-weight’ rating on Muthoot Finance with a target price of ₹2,400, following a robust Q4FY25 performance led by strong AUM expansion and earnings growth. The brokerage, while optimistic about FY26 earnings potential, remains cautious due to valuation and gold price sensitivity.
Muthoot Finance’s Q4 net profit surged 42.7% year-on-year to ₹1,508 crore, supported by a 36% YoY jump in net interest income (NII) to ₹2,904 crore. The results reflected one of the company’s most profitable quarters in recent memory, underpinned by rising gold prices and lower credit provisioning.
Strong earnings but NIMs face pressure
Morgan Stanley highlighted that AUM and EPS both grew 43% YoY, demonstrating the strength of gold-backed lending in a high-interest, high-liquidity environment. The company also posted a return on equity (ROE) of 22%, reflecting its capital-efficient model.
However, the brokerage flagged a moderation in net interest margins (NIMs) on a sequential basis, which, while expected, could pose a ceiling on further earnings upside if cost of funds remains elevated.
FY26 outlook promising, but valuation fair
Looking forward, Morgan Stanley expects FY26 to be another strong year for earnings, backed by demand for gold loans and a likely easing interest rate environment. Lower bond yields and a supportive macro backdrop could help sustain growth and profitability.
That said, the brokerage remains neutral in its stance, citing a balanced risk-reward. The key downside risk, it said, is a sharp correction in gold prices, which could dampen both demand and collateral coverage. On the other hand, the upside risk is broader earnings downgrades in the financial sector, which could make Muthoot’s consistency more attractive by comparison.
“In a scenario where other NBFCs face asset quality or funding challenges, Muthoot’s gold-backed book provides defensive stability. But at current levels, the stock fairly prices in near-term strength,” Morgan Stanley wrote.
Disclaimer: This article is based on the brokerage report by Morgan Stanley. It does not constitute investment advice. Investors are advised to consult their financial advisors before making any investment decisions.
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