Muthoot Finance Ltd shares surged about 10% on Thursday, also hitting a new 52-week high of ₹2,800, following stellar June quarter (Q1FY26) results, in which gold loan assets under management (AUM) rose 40% year-on-year and 10% quarter-on-quarter. The management expects traction to sustain in FY26.
This shouldn’t be surprising given the steep rise in gold price (now around ₹1 lakh/10 grammes), which means a higher value of collateral for gold loan financiers and a boost to their AUMs.
“While gold prices could stay range-bound, Muthoot has headroom to lift loan-to-value (LTV), which now is at 62% versus a five-year average of 65%,” said a Jefferies India report. LTV ratio helps to gauge how much loan one can receive based on the pledged value of gold.
Jefferies expects Muthoot’s standalone gold AUM to grow 21% in FY26 and has raised FY26 and FY27 earnings per share estimates by 17% and 9%, respectively. In its Q4FY25 call, Muthoot had guided for 15% gold loan AUM growth for FY26.
Rival Manappuram Finance Ltd’s Q1FY26 gold AUM grew 22% on-year and 12.3% on-quarter. Manappuram has been diversifying to counter the cyclicality in the gold lending business. Thus, it has more exposure to other non-gold lending segments such as microfinance and MSME lending.
Muthoot’s core
For Muthoot, though, gold loan remains the priority. In fact, Muthoot’s subsidiaries are also disbursing gold loans. Muthoot Money’s Q1FY26 AUM grew over 200% on-year to ₹5,000 crore, with substantial contribution from gold loans, as the vehicle finance lending business is being run down.
The microfinance subsidiary Belstar Microfinance is also growing its gold portfolio; it has 15 gold loan branches, which will be scaled up to 50. Muthoot’s share of non-gold loans is expected to remain at 15-20%, up from 13–14% now.
In Q1FY26, Muthoot’s net interest margin (NIM) sequentially improved to 12.15% from 11.3% led by higher yield on advances. Easing interest rates could aid in more margin expansion. Provisions fell aided by recovery from NPA accounts; asset quality improved. Gross stage 3 loan assets fell sequentially to 2.6% from 3.4%.
With this, Muthoot shares have gained 52% in the past one year, widely beating those of Manappuram. At FY27 price/book value, Muthoot trades at a multiple of 2.74X, according to Bloomberg.
Motilal Oswal Financial Services finds Muthoot’s valuation rich for the deep cyclicality in its gold loan growth, which will remain vulnerable to any volatility in gold prices. For now, the stock seems to be capturing the brighter picture adequately.
