Shares of Muthoot Finance surged to a new high with a gain of over 17 per cent after the company reported 66 per cent jump in consolidated net profit for December quarter. After hitting a high of ₹881.35 on the BSE, the stock settled at ₹873.85.

On Friday, Muthoot Finance reported a 66 per cent jump in consolidated net profit to ₹803 crore for December quarter 2019 as against ₹485 crore reported in the corresponding period a year ago. Total income increased by 35 per cent to ₹2,313 crore (₹1,717 crore).

Analysts remain bullish on the stock. The company has benefited from increasing gold prices and stronger demand, according to analysts.

According to IDBI Capital, though Stage III loans declined during the quarter by 89 bps to 2.54 per cent, they are not a cause of concern as they are backed by high collateral. Also, with company providing repayment flexibility to its customers by revising it within three months, management remains confident of recovery. “Further, high gold prices provide comfort to its existing AUM,” IDBI Capital, which retained its buy rating and a target price of ₹875, said.

BoB Capital, has revised its target price to ₹875 by March 2021 as against its earlier prediction of ₹825. Demand uptick and robust collections largely offset incremental borrowing cost, keeping spreads buoyant at 15.8 per cent. Despite a one-time rise in opex and credit cost, PBT (profit before tax) surged 38 per cent y-o-y to ₹1,080 crore, BoB Capital said and added “we increase FY20 earnings estimates by 5 per cent to bake in better NIM (net interest margin), while broadly maintaining FY21-FY22 estimates.”

Ambitious target

Antique Stock Broking has fixed a more ambitious price target of ₹1,145 for Muthoot Finance, as it sees immunity from liquidity crisis, inability of weaker NBFCs to lend, firm gold prices and strong marketing activity ensuring good growth in times to come.

For almost same reasons, Nirmal Bang too revised its estimates for FY20/FY21/FY22 of the company and retained its rating with a revised price target of ₹909 (from ₹879 earlier).

However, Motilal Oswal Securities expects spreads to moderate from Q3-FY20 levels of nearly 16 per cent to a run-rate of about 13 per cent in FY21. “We estimate CAGR of 15 per cent in AUM and 13 per cent in PAT over the next two years,” said Molital. While raising its estimates by 6-10 per cent, Motilal Oswal maintains its ‘neutral’ stance with a price target of ₹800.