Muthoot Microfinance shares: Shares of Muthoot Finance surged more than 4 percent to Rs 252 each on June 20, following a ‘buy’ rating from UK-based brokerage firm Investec. The firm cited a strong growth outlook and set a target price of Rs 350 per share.
Year-to-date, the stock of this micro-finance institution has risen over 17 percent, outpacing the 8 percent increase in the benchmark Nifty 50 index. Previously, Muthoot Microfinance shares reached a 52-week high of Rs 280 each on December 26, 2023.
Investec analysts believe that the market is undervaluing Muthoot Microfinance, noting that it trades at 1x FY26E price-to-book (P/B) ratio, which does not reflect its strong growth profile and profitability projections over the next three years.
“We anticipate re-rating catalysts for Muthoot Microfinance, including a credit rating upgrade after surpassing an AUM size of Rs 10,000 crore, sustained financial performance, and government initiatives aimed at improving rural economic growth. We forecast Muthoot Microfinance to achieve 24 percent AUM growth and 4 percent/18 percent RoAUM/RoE over the next three years,” the brokerage firm stated.
Additionally, analysts highlighted that the company benefits from the support of a permanent promoter, which ensures regular equity infusions during any shock events. The promoter holds a 55.47 percent stake in the company, while private equity investors own 22.67 percent, the lowest among its listed peers.
However, analysts also pointed out key risks to this re-rating, such as event or political risks in the microfinance sector, regulatory risks affecting microfinance pricing, and potential supply headwinds from existing private equity shareholders.
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Over time, Muthoot Microfinance has changed the composition of its AUM As of March 2024, the share of its largest state, Tamil Nadu, has decreased to 26 percent, and the share of its second-largest state, Kerala, has reduced to 16 percent. The company has also expanded in Uttar Pradesh and Bihar, which now contribute 9 percent and 11 percent of AUM, respectively.
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