The Government of India had announced withdrawal of the country’s two highest value currency notes last year with a strategy aimed towards restricting corruption, counterfeiting, terrorist activities and accumulation of black money. Eventually “demonetisation” will be an encouraging influence in the future with improved tax obedience, digitalisation and formal channelisation of the savings system. Similarly, the Goods and Services Tax (GST) is expected to bolster the economy with a simplified indirect tax system and consolidate the fragmented Indian market under uniform taxation, thus widening the tax net. The NBFC sector in India is considered to be one of the important components of the financial system, showing consistent growth despite undergoing several transformations. They have been able to fill the service gap of traditional banks and cater to the credit demand by building substantial assets under management in vehicle finance, personal loan and the housing finance segments. Their credit is expected to grow at a healthy rate of 7-10% over the next few years due to improving macroeconomic conditions, higher credit penetration, increasing consumption and disruptive digital trends. Gold is considered a popular investment in Indian households due to its cultural and investment utilities. Weddings being a key occasion for buying gold in India, the demand for gold and jewellery are always favourable. India’s gold industry is becoming more organized, as large retailers are gaining significant market share. Specialised gold loan NBFCs have been growing at over 12% in the past few years with Southern India being the traditional hub of gold and the gold lending market in the country. Muthoot Finance Limited is the largest gold financing company in the country in terms of loan portfolio and a non-deposit taking NBFC, headquartered in Kerala. The company provides personal and business loans secured by gold jewellery or gold loans, primarily to individuals who possess gold jewellery, but cannot access formal credit due to various reasons. At the current market price of Rs 460, the Muthoot stock price earning ratio is at 13.27 times FY18 earnings, while earning per share for FY18 is seen at Rs 36. Net sales and profit after tax are expected to grow at a CAGR of 13% and 25% over the next few years. The Muthoot Finance stock currently quoting at the bourses at Rs 460 can be purchased by portfolio investors with a price appreciation target of Rs 620 with a 12-15 months investment time horizon.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.