Muthoot Finance’s share price grabbed attention after the Reserve Bank of India (RBI) finalized gold loan regulations, easing some of the stringent conditions proposed in earlier drafts. The stock closed the session with nearly a 4% gain, maintaining strong momentum following a 44% rise over the past year.
Jefferies has named Muthoot Finance as its preferred pick in the gold loan sector, setting a price target of Rs 2,660 per share. This implies an upside potential of around 4%, even after the substantial recent rally.
Valuation Insights from Jefferies
Jefferies’ price target is based on a valuation framework that includes a 2.6x price-to-book value (P/BV) multiple for Muthoot’s standalone business by June FY27, alongside 0.8x P/B for its microfinance subsidiary. The target also incorporates 1.1x P/B for the housing finance business and a 10x price-to-earnings (PE) ratio for the insurance broking arm by the same period.
Impact of Relaxed Loan-to-Value Norms
The final RBI gold loan regulations have softened some of the tougher norms from the draft stage. Notably, the effective loan-to-value (LTV) ratio at origination for loans under Rs 2.5 lakh is set at 73%, assuming a 17% yield. This aligns closely with the current ~75% LTV level maintained by most NBFC gold financiers, thereby reducing concerns about a potential slowdown in loan growth.
Jefferies highlighted that the requirement for detailed credit assessments now applies only to loans exceeding Rs 2.5 lakh, easing operational burdens. The earlier draft’s mandatory end-use monitoring provision has also been dropped, further reducing compliance intensity.
Positive Outlook Amid Risks
Jefferies views these regulatory relaxations as favorable for growth prospects and operational efficiency, likely supporting margin improvement. However, they caution investors to monitor potential headwinds such as a drop in gold prices, slower loan growth, margin pressure, and rising credit losses.
Muthoot Finance’s shares have rallied more than 14% in the last five trading sessions, contributing to an impressive 44% gain over the past year—signaling strong market confidence amid evolving regulatory clarity.
