Why Muthoot Finance Share Price is Falling

Tracking the bullish global sentiment, Indian share markets staged a gap-up opening today.

Overnight in the US, the Dow and Nasdaq powered up as retail inflation eased. The sentiment was so bullish that the Nasdaq rallied 7.4%!

Back home, the benchmark BSE Sensex surged 1,000 points to scale a new 52-week high while the NSE Nifty jumped 300 points to reach 18,332 level (very close to its 52-week high of 18,351).

Mind you, the headline indices are now just 1% away from hitting their new all-time highs. The broader market also recorded gains.

Amid all this euphoric sentiment, share price of Muthoot Finance fell around 5% in intraday trade.

That's not all. The stock has underperformed big time and has seen a fall of 30% in 2022.

Muthoot is the largest gold loan NBFC in India. A major chunk of Muthoot's business comes from giving gold loans.

Let's find out why one of India's top NBFC is underperforming.

Muted Quarterly Results

The recent fall can be attributed to muted quarterly performance by the gold financier.

On 10 November 2022, Muthoot Finance reported a 10% decline in its consolidated net profit amid a fall in total income.

It reported a profit of Rs 9 bn in September 2022 quarter as compared to net profit of Rs 10.1 bn reported in the same period a year ago.

Sequentially, net profit rose 9% from Rs 8.3 bn but the June 2022 quarter was also muted.

The NBFC's total income during the quarter under review fell to Rs 28.4 bn as against Rs 30.6 bn in the year ago period. Its interest income was also down 8.2% at Rs 27.6 bn.

In the previous quarter too, Muthoot had recorded a 17% fall in net profit. So, its poor financials is one reason why shares of Muthoot Finance are under pressure.

Other Factors Behind Muthoot Finance's Decline...

A primary reason why Muthoot Finance has underperformed throughout 2022 could be because of falling gold prices.

A major chunk of Muthoot's business comes from giving gold loans. 90% of Muthoot Finance's assets are in gold loans. Hence, even a small up or down move in the gold price affects Muthoot's financial performance.

As the trend shows, gold prices fell in 2022 and were back to 2020 levels. They have recovered at present.

When gold prices fall, fewer people will mortgage gold because less money will be offered to them.

Another reason behind the underperformance can be the company's concentration in a particular geography. Muthoot's operations have a high degree of geographical concentration in South India. Most of its branches are present in that area.

Last year, there was a strike by a group of employees associated with Centre of Indian Trade Unions (CITU) which resulted in operational problems for a few of its branches in Kerala.

The company is looking to diversify and establish presence in other markets as well.

We covered an editorial in August this year explaining why Muthoot Finance was falling back then.

How Muthoot Finance Has Fared in 2022

Not very good to be honest, which is a rare sight for a company with an established track record and a strong brand name in the gold industry.

In 2022 so far, shares of Muthoot Finance are down 30%. After declaring results yesterday, the stock ended 1.2% lower on the BSE. Today, it fell around 5% to hit a low of Rs 1,041.

Muthoot Finance has a 52-week high of Rs 1,722 touched on 15 November 2021 and a 52-week low of Rs 950 touched in September this year.

Take a look at the table below which compares Muthoot with its peers on important metrics.

Comparative Analysis

Company	Muthoot	Chola Invest	M&M Finance	L&T Finance	Shriram Finance
ROE (%)	23.5	20.3	6.8	4.4	11.3
ROCE (%)	13.9	9.3	7.4	6.6	9.9
Latest EPS (Rs)	93.4	28.5	18.9	5.4	141.0
TTM PE (x)	11.8	25.4	11.6	15.0	8.8
TTM Price to book (x)	2.3	4.6	1.6	1.0	1.2
Dividend yield (%)	1.8	0.3	1.6	0.6	1.6
Industry PE (x)	45.4
Industry PB (x)	3.1

Data Source: Ace Equity, Equitymaster

About Muthoot Finance

Muthoot was originally set up as a private limited company in 1997 and was reconstituted as a public limited company in November 2008. It provides finance against used household gold jewellery.

The promoter family has been in this business for over seven decades.

To know more about Muthoot Finance, check out its factsheet and latest quarterly results.

You can also compare Muthoot Finance with its peers.

Muthoot Finance vs Bajaj Finance

Muthoot Finance vs Muthoot Finance vs IDFC

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...