Antique Stock Broking has maintained 'Buy' on Muthoot Finance after the company declared its second quarter results. The stock broker fixed price target at Rs 230.
Commenting on the results, Antique Stock Broking said, ''Being the largest and the lowest cost lender, the impact of regulatory and gold price changes was slightly lower than Manappuram. Nonetheless, Muthoot Finance had its own share of problems. Growth suffered, auctions increased and interest income losses in these auctions pressurised profitability. Like Manappuram, Muthoot Finance too re-engineered its business process and activated its employee force. However, it has not yet witched to shorter tenure products. Instead, they have chosen to wait and watch the customer behaviour in response to Manappuram's new products.
Commenting on the investment rationale, the stock broker said, ''Auction losses for Muthoot Finance may continue for a slightly longer time. Nevertheless, its cost leadership and strong retail franchise will ensure that it is able to maintain current level of profitability and grow in future. Valuations at 1.2x FY17e book are inexpensive.
Muthoot Finance is well positioned to increase its business by 25% without incurring any significant increase in operating costs. We build in a modest 11% loan book CAGR over FY15-17 due to weak demand environment and static gold prices. Most of the yield adjustments are over and margin should stabilise ~9%. Current valuations at 1.2x FY17e book are attractive given its leadership status and strong returns profile. We maintain our Buy recommendation with a target price of Rs 230 a share.''