Experts upbeat on golds loans, see these NBFC stocks rise by 20-21%
One can say that a new realization dawned over the participants of the stock market to come to the conclusion that gold loan NBFC have positive ALMs, low leverage, pricing power and highly liquid collateral.
Gold is often seen as one of the safest investment options in India.Analysts at Antique say, "If the world does well, gold will be fine. If the world doesn't do well, gold will still shine". The analysts stated that, in the last 6 months gold loan in NBFCs have hit a new high. Not only this, it has given positive returns - somewhat 50%, since the start of the NBFC crisis in September 2018. Analysts believe that one can say that a new realization dawned over the participants of the stock market to come to the conclusion that gold loan NBFC have positive ALMs, low leverage, pricing power and highly liquid collateral.
According to Antique Broking firm, here is why you should invest in gold loans and gold loans NBFCs:
1.There are now high chances of longevity of gold loans as a product and gold loan NBFCs as a lenders, post the recognition of these businesses that show a promising growth and longevity. Growth in organized gold loan market will remain 8-12% over the medium, due to factors such as lack of gold price appreciation, large unorganized market and competition from personal loans & MFI loans. However, healthy profits can be generated if these factors are coupled with operational intensity of gold loans.
2. Many NBFCs have spread into diversified non-gold loan areas such as micro-finance, affordable housing & CV finance, to witness potential growth and broaden their network
Not just gold loans, but also make most of stock performances as well. Analysts at Antique have listed out two stocks which are well placed in gold loan business and can make investors rich.
Manappuram - slow on gold, fast on non-gold
Being the early mover into non-gold businesses, MANA is channelizing larger chunk of energy & resources towards non-gold businesses (~25% of networth, ~30% of loans, ~15- 18% of profits). While this may weaken the competitive positioning of MANA's gold business relative to its pan-India competitors, it also does not guarantee success in crowded non-gold businesses. We expect gold loan CAGR for MANA at 10% to lag that of MUTH at 12%, despite the smaller size. Based on SOTP valuation (9.3x earnings and 1.8x book on FY21 for gold & non-gold), Manappuram trades close to its fair value of INR116 per share.
Muthoot Finance - strong on gold, steady on non-gold
MUTH follows balanced strategy of continuous strengthening its gold loan business as well as building a steady business in housing, microfinance, personal & CV loans. Its gold loan business has strengthened over time and benefits have passed on to the customers, enabling it to become lowest rate gold NBFC lender. Also, MUTH's steady approach towards non-gold allows them to identify niches in otherwise crowded segments like housing, micro and CV. Based on SOTP valuation (9.6x earnings and 1.9x book on FY21 for gold & non-gold), Muthoot offers strong upside with target of INR742 per share.
Adding to this, AMP's report puts a hold rating on Manappuram, with a target of 116 , with a CMP of 125 whilst putting a buy call on Muthoot Finance, with a target of 742 and CMP of 614. It is expected that there will be returns of 20% from Manappuram and 21% by Muthoot Finance on equities.
Meanwhile, returns of 5-6.3% is expected on assets.