Stocks To Buy: Gold Loan Company Stocks With Gold At Record Highs

Motilal Oswal has come out with its latest report on gold loan companies, even as gold rates hit record highs recently on the MCX. Here is Motilal Oswal's take on two gold loan companies, viz Muthoot Finance and Manappuram Finance and whether one should buy these stocks.

Manappuram Finance: Re-rating scope exists

According to Motilal Oswal, Manappuram Finance trades at 1.0x FY24E P/BV and the firm believes that there is still a re-rating scope in valuation multiples for a franchise that can deliver an RoE of 16%-17%.

"Having said that, we also believe for Manappuram Finance the trade-off between loan growth and margins is the most pronounced and it will continue to see a moderation in its gold loan book because of its current focus on margins and profitability," the brokerage has said.

Manappuram Finance: Succession plans

According to Motilal Oswal one of the reasons why Manappuram has traded at a steep discount to Muthoot is the lack of succession planning. "However, MGFL recently disclosed that it has appointed Dr. Sumitha Jayasankar (daughter of MD VP Nandakumar) as an Additional Director (Executive) on the Board as part of the succession strategy. Between 2015 and 2018, she served as the CEO-Online Gold Loans, MGFL," the brokerage has said.

Manappuram Finance: Buy with a price target of Rs 150

"While we expect MGFL to deliver an 8% gold loan growth each in FY24/FY25, we model consolidated AUM growth of 15-16% with a consolidated RoA/RoE of 4.1%/17% in FY24E. Maintain BUY with a target price of Rs 150 (premised on 1.1x Sep'24E P/BV)," the brokerage has said. Share price of Manappuram was last trading at Rs 115.45.

Muthoot: best franchise among gold-loan NBFCs

Motilal Oswal believes that Muthoot Finance is the best franchise among gold-loan NBFCs in the country in terms of distribution strength, brand recall and the ability to inspire customer confidence. "However, it is facing stiff competition from banks as well as select NBFCs who have recently become aggressive in the sector. "Given the strong correlation between gold prices and gold loan growth, we do expect Muthoot's gold loan growth to benefit from higher gold prices. Spreads/margins, in our view, have little scope for further organic improvement because of the reasons we attributed earlier," the brokerage has said.

Disclaimer

The stocks have been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.