The Non-banking financial corporations, or NBFCs, have become an essential part of the Indian economy over the past few years. In a recent report from S&P Global, NBFCs are touted to grow at a rapid pace. The same report had suggested that the Indian economy would grow at 6.8 per cent in FY25. According to the report, the loan growth of these NBFCs will be stronger than the banking sector. The S&P Global expects the growth of rated private sector non-banking finance companies to decline to an average of 18 per cent in FY25. In addition, it expects NBFCs to grow at 14 %.

Analysis

Around 2% of India’s total population invests in financial assets. The mutual fund industry’s penetration in India is close to 7% (Based on the number of PAN cardholders). This under penetration offers a huge opportunity for the industry to grow.

Migration to financial savings, wider distribution and sustainable performance are expected to enable growth in the industry.

Also, increasing financial literacy among investors, digitization and the number of mediums available tend to attract more investors to invest in the financial markets.

Key Financials –

• Profitability: Profit margin (PAT margin) of the company shows how well a company controls its cost. It is one of the important indicators to show the financial health of the company. Net profit of Muthoot Finance is Rs 4,049.67Cr and the compounded growth of profit in the past 3 years is 85 %. The PAT margin of Muthoot Finance is 32.05 %.
• EPS growth: Investors should ensure the EPS figure is growing faster than revenue numbers because it indicates company management is increasing the efficiency with which it runs the company. In Muthoot Finance, the EPS grewby 58 % YOY. 

 Financial Ratios –

• Return on Equity (ROE): Muthoot Finance has a average ROE track record. The ROE of Muthoot Finance is at 86 % for the latest year.
• P/E Ratio: Relative valuation metrics like the P/E ratio can be used to see if the stock of Muthoot Finance is worth at the current levels at Rs 1,958.45. The stock is trading at a current P/E ratio of 65and the average historical P/E for the last 5 years was 12.12.
• P/B ratiocan be one of the best metrics to value such companies. Currently, Muthoot Finance is trading at a P/B of 22. The average historical P/B of Muthoot Finance for the last 5 years was 2.50. This can be compared with the Market price per share in order to know if the stock is undervalued or overvalued.

The stock gave momentum above ORB and hence recommended with lucrative risk-reward ratio.