Why Jefferies is Bullish on Muthoot and Manappuram Finance: Key Insights

Gold financing companies Muthoot Finance Ltd. And Manappuram Finance Ltd. Are set to be in the spotlight in Thursday’s trading session, following a bullish outlook from global brokerage firm Jefferies. With potential upsides of up to 23%, these stocks are drawing significant investor interest.

Jefferies’ Positive Outlook

Jefferies has initiated coverage on both Muthoot Finance and Manappuram Finance, assigning a ‘Buy’ rating to each. The target prices are set at ₹2,200 for Muthoot Finance and ₹270 for Manappuram Finance. This optimistic stance is driven by several supportive factors for gold prices, which directly benefit gold-focused non-banking financial companies (NBFCs).

Benefits from Rising Gold Prices

Gold NBFCs like Muthoot and Manappuram are expected to see considerable gains due to increased gold prices. These companies are poised to benefit from reduced competition and a broader diversification strategy, which Jefferies believes will support robust loan growth and improved financial performance.

Superior Asset Quality and Return on Equity

Jefferies highlights the low asset quality risk associated with gold, which offers superior returns on equity (ROE) compared to most NBFCs. The brokerage firm notes that valuations for these gold financiers appear reasonable, providing a solid foundation for future growth.

Projected Financial Growth

Jefferies projects a compounded annual growth rate (CAGR) for earnings per share of 17-19% for Muthoot Finance and Manappuram Finance over the next few years. This is a significant improvement compared to the 3-8% CAGR from FY21-24. Additionally, an ROE of over 18% is expected for both companies from FY24-27, highlighting their financial strength.

Preference for Muthoot Finance

Among the two, Jefferies has a preference for Muthoot Finance, which has 82% of its assets under management in gold. This high leverage on gold prices positions Muthoot Finance advantageously in the current market scenario.

Manappuram Finance’s Diversification Strategy

Manappuram Finance is noted for its focus on diversification, which Jefferies believes offers a compelling investment opportunity at a cheap valuation. This strategy is expected to enhance the company’s resilience and growth prospects.

Recent Stock Performance

As of Tuesday, July 16, shares of Muthoot Finance closed marginally lower by 0.11% at ₹1,834.15, while Manappuram Finance saw a 0.61% decline, settling at ₹220.71. Despite these minor setbacks, both stocks have performed well year-to-date, with Manappuram Finance gaining up to 30% and Muthoot Finance rising by 25%.

In Conclusion, Jefferies' positive coverage on Muthoot Finance and Manappuram Finance underscores the potential for substantial returns for investors. With favorable gold prices, strong asset quality, and strategic diversification, these gold financiers are well-positioned for growth. Investors looking to capitalize on the upside potential in the gold financing sector should consider adding Muthoot Finance and Manappuram Finance to their portfolios.