Jefferies expects gold financiers Muthoot Finance and Manappuram Finance (MGFL) to shine in the near future as the bullion strengthens and competition eases.

What Happened: Jefferies remained upbeat about both Muthoot and Manappuram owing to rising gold prices, stabilising competition from banks and a temporary ban on peer India Infoline Finance's (IIFL) gold loan business. The brokerage expects earnings growth to improve for both banks.

Jefferies also outlines potential risks to its positive outlook, including regulatory changes, potential events pushing down the prices of gold and renewed competition from IIFL once the ban is lifted. 

Muthoot Finance: The brokerage had a "buy" call for Muthoot with a target price of ₹2,220. Muthoot is the largest non-banking financial company (NBFC) in the gold sector, with assets under management (AUM) totalling ₹75,800 crore.

It has a robust gold financing business and exhibits strong operational performance metrics, Jefferies noted. The research firm also seemed upbeat about the firm's growing branch network, with about 4,854 gold branches. 

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The brokerage sees Muthoots’ loan book to grow at an annual growth rate of 18% over FY24-27 and expects standalone profit to grow at 19% over FY24-27. It forecast a return on assets (ROA) of more than 5% and a return on equity (ROE) of over 19% for FY25-27.

Jefferies also noted that Muthoot’s focus on diversification has lagged behind peers like Manappuram. 

"Performance in the non-gold segment will be a key monitorable as Muthoot’s mgmt. is yet to showcase capability in building portfolio strong franchise in non-gold segments," it said.

Manappuram Finance: The brokerage had a "buy" recommendation on MGFL with a target price of ₹270. 
Jefferies anticipates Manappuram’s profit to grow at a 17% annual growth rate from FY24-27. It expects the ROE to inch lower from 21% in FY24 due to diversification into other segments but is likely to remain strong at 18%-20% for FY25-27.

"With a more diversified portfolio, MGFL has growth drivers beyond just gold price movements," the brokerage noted for Manappuram.

Price Action: Shares of Muthoot Finance were up 1.31% at ₹1,858.75 and Manappuram Finance was trading 3.93% higher at ₹229.31 on Thursday.

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