Muthoot Finance in focus as Kotak Securities upgrades stock to ‘buy’

Positive brokerage commentary boosted Muthoot Finance after Kotak Securities upgraded the stock to ‘buy’ and raised its target price. The stock has risen 8-10 percent over the last two days. On Tuesday (September 27),  the turnover was around Rs 2,355 crore — the highest in the last one month or more. Tuesday's delivery percentage volume was around 57.50 percent.

Kotak Securities has upgraded the stock, changing the recommendation to ‘buy’ from ‘add,’ and increasing the target price to Rs 1,240 from Rs 1,200.

Kotak Securities said the domestic gold prices are up 8.50 percent, while the Indian rupee has depreciated a little more than 7 percent, so the rupee depreciationis actually supporting the gold prices.

Competition pressure has increased, given the fact that Muthoot Finance has now done away with the teaser loans. Muthoot Finance had launched teaser loans when the banks were aggressive in the market. So, they see upside risks to the loan growth estimate of 10 percent for FY23 and around 14-15 percent over the next two years.

They remain assertive on the business model, which can deliver an ROE of 20 percent. So both in terms of price to earnings as well as price to book value, the valuations are undemanding.

This Kerala-based lender does not want gold loans to be major part of its book by FY30