Muthoot Finance shares dive 7% despite strong Q4 show; what's hurting the gold lender?

Shares of Muthoot Finance Ltd tumbled 7 per cent to settle at Rs 2,104.40 on Thursday, even as the company came up with a strong set of numbers in the January-March 2025 quarter (Q4 FY25). The gold lender reported a profit after tax of Rs 1,500 crore in Q4 FY25, up 43 per cent year-on-year (YoY) and in line with the Street estimates. Net interest income (NII) was up 36 per cent YoY, driven by strong 43 per cent AUM (asset under management) growth.

Brokerage Kotak Institutional Equities noted several near-term challenges in the gold loan sector as it downgraded the stock to 'Reduce' from 'Add' earlier. Gold prices rallied by 37 per cent in FY2025 and 5% FYTD, which fueled a 43 per cent growth in gold loans in FY2025. However, the calculated loan-to-value (LTV) ratio declined to 54 per cent from 60 per cent in Q3 FY25. Kotak, however, suggested that this opens room for some catch-up growth.

Kotak highlighted that the RBI's draft guidelines propose capping LTV (loan-to-value) at 63 per cent, down from the current 75 per cent. This potential cut in LTV could pose risks to margins and growth. As a result of this high growth, competition in the sector is set to increase.

"IIFL Finance has resumed gold loan growth. Bajaj Finance has delivered 81 per cent loan growth to Rs 8,300 crore (around 8% of Muthoot's gold loan book). Three NBFCs plan to re-enter the business, viz., Chola, Poonawalla and L&T Finance," the domestic brokerage stated.

"We are downgrading our rating to 'Reduce' from 'Add' with an RGM-based FV of Rs 2,275 (up from Rs 2,250)," Kotak further said.

On the technical setup, strong support for Muthoot's counter could be seen in the Rs 2,068-2,000 range.

Ravi Singh, SVP - Retail Research at Religare Broking, said Muthoot's stock looked weak and it can slip towards Rs 2,000, adding that resistance will be seen around Rs 2,200 level.

Osho Krishan, Senior Analyst – Technical & Derivative Research at Angel One, advised maintaining caution and staying watchful of the major support zone placed at Rs 2,000.

Kunal Kamble, Senior Technical Research Analyst at Bonanza, said, "Muthoot Finance is approaching a crucial support zone of Rs 2,068. A breakdown below this level may
trigger a fresh round of selling. The prevailing price structure indicates a bearish undertone. Traders and investors should closely monitor the Rs 2,068 support level for any breakdown signals. The overall trend remains under pressure as long as the stock stays below Rs 2,340."