Muthoot Finance gets a rating upgrade!

CRISIL Ratings has upgraded its ratings on the long-term debt facilities of Muthoot Finance to 'CRISIL AA+/Stable' from 'CRISIL AA/Positive.'

Rating rationale

• The upgrade is driven by Muthoot Finance's ability to profitably scale up its core gold loan business while maintaining its strong financial risk profile. 
• Muthoot Finance has an established track record and brand name in the gold financing industry. It has strong capitalization and profitability is among the best in the industry which is expected to remain healthy.

Benefits of this upgrade 

• The change in rating from 'AA' to 'AA+' comes as a positive for the company. Muthoot Finance now has the highest standing in the category and this rating is just one level below 'AAA' rating which is the highest rating for long term debt instruments (according to its press release). 
• AA+ rating denotes 'High Safety'. Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Hence, the credit risk is very low. 

This rating upgrade will enable the company to raise more long term debt funds as well as attract a wider set of investors. The company will also be able to raise funds at much more competitive rates.

Q3 results highlights

• Robust rise in profit: Muthoot Finance has reported a 17% on-year rise in net profit to Rs 1,006.6 crore during the quarter ended December 31, 2020 as compared to Rs 861.04 crore, a year ago. Revenue rose to Rs 3,000.78 crore from Rs 2,588.4 crore, a year ago.
• Strong management guidance: Gold loan assets increased by Rs 3,389 crore to Rs 49,622 crore. Muthoot Finance said the company achieved a growth of 22% in gold loan portfolio during the first nine months of the current year. The management is confident about ending the year with at least 25% growth as against the previous year's figure of 22%.
• Brokerages upbeat: Following the robust performance, brokerages have raised their target share price on Muthoot Finance shares. With credit risk a structural non-issue and medium-term super-normal profitability, Edelweiss Securities said Muthoot Finance remains its top pick among NBFCs. Edelweiss has increased the target price to Rs 1,540 from Rs 1,450 earlier. Other brokerages Nirmal Bang and Motilal Oswal have also raised the target price to ₹1,592 and ₹1,500 respectively.