Muthoot Finance shares fell 14% Monday as Q1 margin compression of 300 bps outweighed 25% profit growth. Jefferies downgraded to hold; CLSA, Morgan Stanley, Bernstein kept overweights.
Muthoot Finance shares fell 14.4% Monday after a mixed June quarter had brokerages cutting estimates and one downgrading the stock to hold. The gold loan lender's profit after tax rose 25% to ₹2,550 crore from ₹2,046 crore a year earlier, but the market focused on a 300 basis point compression in net interest margin as asset yields normalised from elevated second-half FY26 levels.
The stock hit a low of ₹2,671 on the NSE against Friday's close of ₹3,119.60. Around 10 a.m. it traded at ₹2,809.
Global brokerage CLSA maintained its outperform rating but cut its target to ₹4,000 from a higher level. Profit after tax missed CLSA's estimate by 16%, the firm said, driven by a sharper-than-expected yield compression of roughly 300 basis points. Customer count grew 2.5% quarter on quarter after two quarters of decline, a sign the company has moved away from its earlier profitability-over-growth stance, CLSA said. AUM grew 6% q-o-q even as gold prices corrected 4% q-o-q, while operating expenditure growth of 21% year on year came in higher than expected.
Morgan Stanley kept its overweight rating and a target of ₹3,705, calling the quarter decent. The brokerage said the earnings miss looked worse than it was because consensus estimates were unusually high given weak average gold prices quarter on quarter and elevated one-off yields in FY26. Net interest margin missed estimates, Morgan Stanley said, but better loan growth contained the overall miss.
Bernstein maintained an outperform rating with a ₹4,500 target price. The brokerage described Q1 as mixed: healthy gold loan AUM growth overshadowed by a 300 bps contraction in net interest margin as asset yields normalised. Management expects yields to stabilise at 18-18.5%, Bernstein said, but selective rate reductions, a higher mix of lower-yielding loans and limited relief on funding costs could keep profitability under pressure. Asset quality remains stable, Bernstein added, but the margin reset adds pressure to the current earnings growth trajectory.
Jefferies downgraded the stock to hold and cut its target to ₹3,300. Q1 profit after tax grew 25% y-o-y to ₹25.5 billion but missed Jefferies' estimate by 18%. Net interest margins fell sharply on yield normalisation, rollover to lower rate slabs and price cuts amid competition, the brokerage said. Competition and range-bound gold prices are likely to weigh on EPS growth in FY27, Jefferies said, cutting its FY27 and FY28 earnings estimates by 7% and 8%.
Domestic brokerage Motilal Oswal maintained a neutral rating with a target of ₹2,850. FY27 started on a relatively weak footing, it said, as lower gold loan yields and margin moderation weighed on profitability despite healthy gold loan growth and customer additions. The industry has entered a more competitive phase with aggressive pricing compressing yields, Motilal Oswal said, and incremental earnings are likely to depend more on balance sheet expansion than margin resilience. The brokerage expects FY26 to have marked a cyclical peak in profitability and cut its FY27 and FY28 estimates by roughly 17% and 7% to reflect sharp net interest margin compression.
The board recommended the appointment of Alexander George as Managing Director effective October 1.
Muthoot Finance's Alpha Score sits at 49/100, a Mixed label in the Financials sector. The stock page is MS stock page.
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