Rising gold prices puts spotlight on these 2 stocks. Details here

Rising gold prices puts spotlight on these 2 stocks. Details here

A sustained surge in gold prices has put the focus on a couple of stocks, which have gained 15-19% in a month.

The two stocks are Muthoot Finance and Manappuram Finance Ltd.

While shares of Muthoot Finance fell over 1.5% today, they have gained over 17% in a month. Similarly, Manappuram Finance has delivered a nearly 16% return to investors in a month.

This is due to rising gold prices along with lower competition from banks and regulatory interventions in unsecured gold loan segments, reported Business Today quoting Nirmal Bang Institutional Equities.

According to insights shared by the brokerage, the two gold loan companies are poised to experience growth and enhanced profitability in the future, given their dominant position in the industry.

Muthoot Finance

“In terms of our pecking order in gold loan NBFCs, we are positive on Muthoot Finance because of its strong customer acquisition and retention measures, entry into new geographies and customer segments, economies of scale with low cost to average asset ratio of 3% and growth based on strong internal accruals (CAR at 30.9%),” Nirmal Bang said.

Nirmal Bang has revised its earnings estimates for FY24, FY25, and FY26 upward by 0.9%, 9.8%, and 10.8%, respectively.

It attributed this upward adjustment to the anticipation of a compounded annual growth rate (CAGR) of 16.8% in gold loans over a period of 2.25 years, spanning from the December quarter of FY24 to FY26.

This projection is based on assumptions of a 10.5% CAGR growth in 22-carat gold prices, 5% CAGR in overall tonnage, and 5.7% CAGR in client addition. Additionally, Nirmal Bang expects some enhancement in spreads and favourable credit costs.

Muthoot Finance Ltd retained its ‘BUY’ rating with a revised target price of Rs 1,927. This valuation is based on 2.5 times FY26E adjusted book value and a subsidiary value of Rs 76.30 per share, marking an increase from its previous target of Rs 1,702.

Manappuram Finance

The brokerage is also optimistic about Manappuram Finance, citing growth recovery in the core business and potential as a diversified lender.

However, Nirmal Bang analysts noted that its re-rating “hinges on timely execution of its diversification plans and RBI giving approval for the addition of gold loan branches in future”.

“We have raised our earnings estimates for FY24E, FY25E and FY26E by 0.5%, 4.5% and 5.7%, respectively,” it said.

The brokerage maintained a “Buy” rating on Manappuram Finance with a revised target price of Rs 233.