Shares of Muthoot Finance and Manappuram Finance have rallied significantly in 2025, but brokerage house ICICI Securities has sounded a note of caution, warning that a decline in gold prices may impact valuations of these gold loan non-banking financial companies (NBFCs).

In its latest report, ICICI Securities maintained an 'Add' rating on Muthoot Finance but downgraded Manappuram Finance to 'Hold', reflecting its cautious stance on the sustainability of growth amid a changing macro environment.

Manappuram Finance Downgraded to Hold

Manappuram Finance, which has delivered a strong 39 percent return in calendar year 2025, has been downgraded to ‘Hold’ from ‘Buy’, with the brokerage retaining its target price of ₹260. ICICI Securities noted that the implied valuation multiple on the gold business appears high, especially in light of declines in its microfinance subsidiary Asirvad’s assets under management (AUM).

The brokerage has factored in:

• 14% CAGR in standalone gold AUM

• -3.6% CAGR in MFI (Asirvad) AUM

• Consolidated RoE estimate at 16.7% for FY25–FY27

Valuation-wise, the target price is based on 1.5x P/BV for the standalone business and 1x for the remaining businesses, translating to 1.4x FY27E P/BV on a consolidated basis, which aligns with historical averages.

ICICI Securities further stated that potential re-rating from capital infusion by private equity investors into Manappuram may be delayed, pending regulatory approvals.

Muthoot Finance Maintained at Add with Higher Target

Muthoot Finance, which has also been a strong performer with a 52% gain over the past six months, retained its ‘Add’ rating from ICICI Securities, but with a revised target price of ₹2,670. The higher price reflects upgraded growth assumptions for its core gold loan segment and consistent return metrics.

The brokerage has factored in:

• 16.2% CAGR in standalone gold AUM (vs earlier estimate of 13%)

• 7.5% CAGR in MFI (Belstar) AUM for FY25–FY27

• Consolidated RoE estimate at 22% for FY26–FY27

The valuation is based on:

• 2.5x P/BV for standalone business

• 1.1x for remaining businesses

• On a consolidated basis, this comes to 2.3x FY27E P/BV, compared with a historical average of 2x and a peak of 3.3x during FY22

The stock’s current price reflects ongoing optimism around gold loan growth, but the brokerage flagged that gold price volatility could become a headwind if not cushioned by further tailwinds.

Elevated Multiples and Risks from Gold Price Volatility

ICICI Securities explained that gold loan NBFCs such as Muthoot and Manappuram have historically seen cyclical patterns, but the current uptrend is marked by:

• Stable yields

• Strong demand driven by high gold prices

• Comparative regulatory headwinds for unsecured lenders, creating a favourable backdrop for gold-focused NBFCs

However, with gold prices showing signs of correction, and the stocks already factoring in optimistic earnings growth, the risk-reward trade-off becomes tighter, especially at current valuations.

“We highlight that a decline in gold prices poses a risk, considering the elevated multiples,” ICICI Securities said in its report. While growth in gold AUM and customer base continues to provide support, valuations leave little room for disappointment, particularly in Manappuram.

Industry-Wide Regulatory Uniformity

ICICI also highlighted that recent regulatory interventions for gold loan NBFCs have standardised operational norms, potentially reducing risk from inconsistent practices across the sector. While this could lead to better industry alignment, it does not eliminate the macro risks stemming from gold price fluctuations or inflationary pressures.

Summary of ICICI Securities View

Investor Takeaway

Investors currently holding these NBFC stocks should reassess their exposure, especially in the context of declining gold prices and limited valuation headroom. Muthoot remains relatively well-placed due to its superior RoE profile and diversified growth, while Manappuram’s upside appears capped, unless capital inflow materialises and MFI drag reduces.

Analysts suggest watching:

• Trends in gold prices and tonnage

• Regulatory developments around NBFCs

• Quarterly AUM growth in both gold and MFI segments

• Potential capital infusion outcomes in Manappuram

The gold loan sector continues to offer attractive long-term structural levers, but current market conditions demand valuation discipline and caution.

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