Gold financiers have been closely tied to the fluctuations in gold prices, and recent trends point to some moderation in the near term. According to Morgan Stanley (NYSE:MS), gold prices in India remained flat in the second quarter of FY25, with a negligible 0.1% drop after a strong 13%+ growth in the first quarter. This leveling off in prices is expected to impact the gold AUM (assets under management) growth of both Manappuram Finance (NS:MNFL) and Muthoot Finance (NS:MUTT), though in varying degrees.
Manappuram Finance, rated as "Overweight" by Morgan Stanley, has focused more on protecting its yields, maintaining a rate of 22-22.5%, rather than aggressively growing its gold loan portfolio. As a result, Manappuram's gold AUM growth is projected at +2% quarter-on-quarter (QoQ), down from 10% in the first quarter. Meanwhile, Muthoot Finance, rated "Underweight," is expected to see +3% QoQ gold AUM growth, down from +11% in the prior quarter.
In terms of overall AUM growth, Muthoot is likely to outperform Manappuram with a 26.5% year-on-year (YoY) increase, compared to Manappuram's 19.5%. The latter’s non-gold loan book, however, continues to expand at a robust pace, driven by a 23.5% YoY rise, despite a slowdown in its microfinance segment.
When it comes to profits, Manappuram’s growth may be more subdued, with expected gains of just +1.6% QoQ and +1% YoY. This is due to factors like net interest margin (NIM) compression and elevated credit costs in its microfinance subsidiary. In contrast, Muthoot is projected to deliver stronger profit growth of +16% QoQ and +26% YoY, helped by lower credit costs.
Looking forward, investors are keenly watching for two key factors: the possible retracing of gold loan growth benefits for Muthoot, following the removal of RBI restrictions on IIFL Finance (NS:IIFL), and the outlook for Manappuram’s microfinance asset quality.
Manappuram remains attractively valued, with a 43% upside potential according to Morgan Stanley's target price of INR 262. However, it's always wise to consider a broader range of analyst predictions, which vary between INR 150 and INR 270 and can be seen on InvestingPro+. Also, the fair value of the counter after analyzing via 4 different financial models is also quite high, which can be seen on InvestingPro+
For those looking to gain a competitive edge and deep insights, InvestingPro+ provides comprehensive insights, fair value estimates, and analyst forecasts, ensuring investors stay ahead of the curve.
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