Muthoot Finance Share Price Declines 5% Despite Stellar Q4 Earnings — What Spooked Investors?

Mumbai | May 15, 2025 — In a surprising twist that left analysts and investors scratching their heads, shares of Muthoot Finance Ltd. (NSE: MUTHOOTFIN) tumbled 5% in today’s trading session — just hours after the company reported robust fourth-quarter earnings for FY25. With net profit rising 21% year-on-year and operational metrics firmly in the green, the sell-off is being seen as a reaction more to the outlook than the numbers.

This counterintuitive move has raised a pressing question among retail and institutional investors alike: If the results were good, why did the stock drop?

Let’s decode the numbers, market sentiment, and possible red flags.

Q4 FY25: Strong Numbers Across the Board

Muthoot Finance delivered a solid Q4 performance on the back of higher gold prices, loan book expansion, and improved asset quality. Here's a snapshot of the key figures:

Not only did the company beat Street expectations on revenue and net profit, but it also reported improved asset quality, a metric that has been under pressure across the NBFC space in recent quarters.

So then, why the negative reaction?

Market Reaction: Shares Slide 5%

Despite the Q4 beat, Muthoot Finance stock fell by 5% intraday to hit ₹1,215 before closing slightly above ₹1,230. It underperformed the Nifty Financial Services index, which was flat on the day.

Analysts say the sell-off could be attributed to:

• Muted growth guidance for FY26, with management projecting just 10–12% AUM growth, down from 13.4% this fiscal.

• Concerns around competition, particularly from fintechs and aggressive public sector banks offering gold loans at cheaper rates.

• Rising cost of borrowing amid a tighter liquidity environment.

• Investor profit-booking, as the stock had rallied nearly 18% in the past three months.

In short, the numbers were solid, but the forward-looking commentary lacked the spark needed to sustain the rally.

Management Commentary: Cautious Yet Confident

In the post-earnings concall, George Alexander Muthoot, Managing Director, acknowledged headwinds in the competitive gold loan landscape but emphasized the company’s resilience and scale.

“We are focusing on quality growth rather than volume chasing. Despite the increased competition, our customer retention rate and repeat business remain robust,” he said.

The company also noted its efforts to digitize operations, with over 40% of disbursals now occurring via digital platforms — a step aimed at keeping fintech threats at bay.

However, on guidance, the tone remained conservative.

Gold Loan Industry: At a Crossroads

Muthoot Finance remains the undisputed leader in India’s organized gold loan market, which is estimated to be over ₹7 lakh crore, with only 35% of that being formalized. But the landscape is evolving quickly.

Key developments shaping the industry include:

• Fintech disruptions from players like Rupeek and Fibe, offering gold-backed lending at click-speed.

• PSU banks increasing market share by cutting interest rates and expanding reach into rural markets.

• Volatility in gold prices, which directly impacts loan-to-value (LTV) ratios and recovery potential.

While Muthoot has responded with digital transformation, aggressive branch-level outreach, and dynamic pricing, the margin pressure is real, especially in semi-urban and urban markets.

Valuation Check: Is It Still Attractive?

At the current price of ₹1,230, Muthoot Finance is trading at around 1.8x its FY25 book value, which is reasonable by NBFC standards but not screaming cheap either. Here's a snapshot:

The valuation reflects the market's expectations of slower growth and competitive headwinds, despite high returns on equity and a steady dividend history.

What Are Brokerages Saying?

Here’s what top brokerages are forecasting post-Q4:

• Axis Securities: "Strong quarter, but guidance cautious. Maintain ADD with a target of ₹1,390."

• Kotak Institutional Equities: "Slower growth outlook weighs on valuation. Retain Reduce with TP of ₹1,180."

• ICICI Direct: "Execution on digital remains a key. Retain Buy with TP of ₹1,450."

There’s no consensus as of now — but what’s clear is that the market is awaiting proof of growth revival, especially in non-gold segments like housing and microfinance, which Muthoot is now venturing into.

Diversification Strategy: Beyond Gold?

To reduce reliance on gold-backed lending, the company is expanding cautiously into:

• Home finance, through its subsidiary Muthoot Homefin.

• Microfinance, under Belstar Microfinance, now contributing 6% to consolidated AUM.

• Personal and business loans, still in pilot stage but expected to scale over FY26–27.

However, these verticals are still in their early innings and will take time to reflect meaningfully on the bottom line.

Risks to Watch

Despite being a fundamentally strong company, there are notable risks:

1. Interest Rate Pressure: Higher borrowing costs could squeeze margins further.

2. Regulatory Oversight: Any RBI tightening in LTV norms could impact disbursals.

3. Tech-led Disruption: Fintechs are fast, digital, and willing to undercut on pricing.

4. Gold Price Volatility: A sharp decline could increase defaults and reduce recovery value.

Investors need to weigh these risks carefully, especially in a high-beta stock like Muthoot Finance.

Bottom Line: Solid Fundamentals, Shaky Sentiment

Muthoot Finance may have delivered a strong Q4, but the muted growth guidance and external challenges have cast a shadow over what should have been a celebratory quarter. For long-term investors, the fundamentals remain intact — high ROE, low NPAs, healthy margins, and a trusted brand. But short-term volatility cannot be ruled out.

Buy on dips? Maybe. But only if you believe in the company’s long-term ability to defend its turf in the changing gold loan ecosystem.