We recommended Muthoot Capital in Jun'14 at the price of Rs. 126. At the current market price of Rs. 219, it has delivered 74% returns since our first recommendation.  At this stage, we recommend the medium term investors to book partial profits and long term investors to continue to hold.

Our investment premise was based on the company's presence in the attractive 2-wheeler financing segment. While we continue to like the long term story, our recent interaction with the management leads us to believe that there are near term headwinds. Its 3-wheeler portfolio continues to report higher losses and is expected to stabilize only in FY16. Also, the 2-wheeler volume growth in South India has been lower vis-à-vis the rest of the country. Thus, there is a high likelihood of a muted growth in FY15. Earnings growth should pick up meaningfully only in FY16.

In this light, valuations at 2.2x FY14 book value are reasonable and we expect stock to trend sideways over coming two quarters. Medium term investors can book partial profits while long term investors who have a horizon of more than a year can continue to hold the stock as we expect a smart recovery in earnings in FY16.

We recommend PARTIAL PROFIT BOOKING at Rs. 219 with gains of 74% in four months. We like Muthoot Capital’s long term story and would recommend long term investors to hold on and add at lower levels of Rs. 180.

Share On