Despite reporting a robust 22% year-on-year jump in its consolidated profit after tax (PAT) for the fourth quarter of fiscal year 2025, Muthoot Finance, India's largest gold loan company, experienced a 5% dip in its share price on Thursday. This decline raises questions for investors: Is this a buying opportunity, or a sign of underlying concerns?
Q4 and FY25 Performance Highlights
Muthoot Finance announced a consolidated PAT of ₹1,444 crore for Q4 FY25, compared to ₹1,182 crore in the same quarter last year. The company's standalone PAT also reached a record high of ₹5,201 crore for the full fiscal year, marking a 28% year-on-year growth. The consolidated loan Assets Under Management (AUM) surged 37% year-on-year to a record ₹1.22 lakh crore, driven by strong gold loan demand. Furthermore, the company declared its highest-ever dividend of ₹26 per share. The group also achieved a milestone by surpassing ₹1 lakh crore in both standalone loan AUM and gold loan AUM. The branch network expanded by 13% year-on-year, reaching 7,391 branches.
Why the Stock Fell
Despite the impressive financial results, several factors may have contributed to the stock's decline. Overall weak market sentiment on Thursday could have played a role. Investors may also be concerned about the recent regulatory guidelines for gold loan NBFCs. While Muthoot Finance's chairman, George Jacob Muthoot, stated that the company is already aligned with these directives due to its strong governance, uncertainty surrounding the impact of these guidelines may be weighing on investor sentiment. A sequential decline in net interest margin (NIM) due to a rise in the cost of borrowings may have also contributed to the decline.
Analysts' Views and Recommendations
Despite the stock's recent underperformance, several analysts maintain a positive outlook on Muthoot Finance. Nirmal Bang Institutional Equities has a 'Buy' rating on the stock with a revised target price of ₹2,693. MOFSL noted Muthoot Finance's healthy operational performance, driven by strong gold loan growth, supported by an increase in gold tonnage and customer additions. Nuvama also retained a 'Buy' rating on the stock, increasing the target price to ₹2,625. However, another brokerage has suggested a target of ₹2,400, citing that the outlook on gold loan growth will remain clouded until there is clarity from the final gold lending guidelines.
Factors to Consider Before Investing
Before making an investment decision, investors should consider the following factors:
The Verdict
Muthoot Finance's Q4 and FY25 results demonstrate its strength in the gold loan market. The company's AUM, profit, and branch network are all growing. However, the recent stock decline highlights the potential impact of regulatory changes and market sentiment. For investors with a long-term perspective and a higher risk appetite, the current dip may represent a buying opportunity. However, it is essential to conduct thorough research and consider all the factors before investing.
