As estimated by Kotak agency
We believe the withdrawal of teaser rate loans and improved pricing discipline will support Muhoot’s near-term net interest margin (NIM). A tailwind for the gold price from falling INR should have a positive impact on Muhoot’s medium-term growth prospects. We remain positive and upgrade our shares to BUY (from ADD) at an adjusted fair value of Rs 1,240 (up 22%).
Alleviating competitive pressure
Our channel check suggests price competition in the gold loan business has likely eased as lenders halted teaser rate loans and exercised pricing discipline in light of rising interest rates. Gold’s lowest interest rate (teaser loan) has gone up to 12% from 6% offered a few months ago, according to market sources. In addition, the stand-alone Gold Finance NBFC has normalized interest rates and returned to Q2 2022 levels. Most lenders are cautious about increasing interest rates within their system. However, even if headline rates return, we do not yet believe that weighted average yields will return to pre-teaser levels.

Due to increasing competitive pressure, Muhoot launched a teaser loan in December 2021 and then put pressure on NIM for the next two quarters. The company shut down the scheme in April, but by June 2022 had transitioned its entire portfolio to high-yield loans. -Period and high speed business.
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Valuations are not strong despite improved underlying security
We will continue to advocate for Muhoot’s business model, achieving a RoE of around 20% and medium-term growth in the early to mid-teens. Credit costs are kept low with strong underlying security and Muhoot’s risk management system that ensures strong portfolio performance throughout the cycle. However, growth has been volatile in relation to gold price movements and auctions. Although we have not revised our estimates, there are risks to the upside as the falling INR has supported the gold price. At 7.6x earnings and 1.5x books in fiscal 2024E, the valuation isn’t tough. Buy; RGM based FV is Rs 1,240.