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Kotak upgrades Muthoot Finance on back of fresh tailwinds
July 04, 2022
Kotak Institutional Securities believes that the addition of new branches will help Muthoot deliver quicker growth over the medium term. Rising domestic gold prices provide further tailwinds to growth and increase comfort on underlying LTV.
However, they do find some NIM pressure due to the rise in rates. Post the sharp stock correction, they have revised the rating to ADD from REDUCE earlier with the target at ₹1,225, a 15% upside from the current market price.
Kotak believes that there are three key drivers for gold loan growth of Muthoot Finance viz. a rise in INR gold prices, Muthoot’s ability to expand franchise i.e. add branches and customers, and availability of funding from banks/debt markets.
On the recent moves, Kotak notes that Muthoot Finance has received permission to open 150 new branches from RBI. They believe that while the gross addition may be considered low (3% of the total branch network of 4,617), this development puts to rest any concern about gold loan companies not getting permission from RBI to open new branches.
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