Muthoot Capital Services - Deep Value Buy - Nirmal Bang

- Changing the business model at the right time: The company has changed the business model at the right time and shifted from the regulatory-impacted gold loan business to relatively stable and safer automobile finance business.

- Strong growth expected going forward: The AUM of the company stood at approximately Rs.300 crore. We expect the company to reach a target of Rs.450-500 crore by the end of FY'13E.

- Strong promoter holding: The promoter holding in the company stood at 77 per cent. In order to comply with the regulatory requirements, the holding has been reduced to marginally below 75 per cent.

- Consistent dividend pay-out ratio: The company has got a consistent dividend pay-out ratio of around 25 per cent. We expect this trend to continue further and going by the earnings for H1FY'13, the company should pay a dividend of Rs.4 for FY'13E translating into a dividend yield of ~4.5 per cent.

Valuation & Recommendation

Muthoot Capital Services logged interest income of Rs.67.3 crore compared to Rs.37.1 crore, an increase of 80.9 per cent y-o-y for FY'12. Profit after tax for the year stood at Rs.15.5 crore compared to Rs.9.7 crore for FY'11. EPS for the year stood at Rs.13.12 and adj. book value stood at Rs.68.7.

During H1FY'13, the company registered interest income of Rs.46.2 crore, an increase of 72.2 per cent y-o-y. Net Interest Income for half-year stood at Rs.30.5 crore compared to Rs.17.8 crore last year, an increase of 71.3 per cent y-o-y. PAT for the H1FY'13 stood at Rs.10 crore compared to Rs.5.7 crore last year, translating into an EPS of Rs.8.02. The book value as on date stands at Rs.77.7.

We value the company at 1.25x FY'13E adj. book value to arrive at a target price of Rs.110 over the next 6 to 9 months providing an upside potential of 24 per cent.

Source : Equity Bulls

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