Muthoot Finance

15 Feb

Economic activity and business expected to pick up – Muthoot Finance

 

 

 

 

 

 

 

 

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 17,352 (+3%), near its high of 17,372. Among the sectoral indices, AUTO(+4%), PSU BANK (+4%), MEDIA (+3.7%) were the top gainers and there were no losers today. Among NIFTY 50 constituents, TATAMOTORS (+6.7%), BAJFINANCE (+5.6%), and EICHERMOT (+5.5%) were the top gainers while CIPLA (-3.6%) and ONGC (-1%) were the only losers today.

MUTHOOTFIN declared 3QFY22 quarterly results. Following are the excerpts from an interview with Mr. George Alexander Muthoot, MD, Muthoot Finance (MUTHOOTFIN) with The Economic Times on 14th February 2022:

  • Despite getting hit by back-to-back covid waves, MUTHOOTFIN was able to increase its disbursals. The company’s focus was mainly on collections because the loans that they had given earlier were becoming stage three assets. These had to be taken back by the customers and those who did not take back had to be auctioned.
  • Disbursals saw an increase but there were repayments as well so the overall growth has been flat. MUTHOOTFIN was able to maintain its profit for the year.
  • As for the road ahead, the Company expects the economic activity to pick up. MSME, small traders, and businessmen are their main customers. As things start opening up in Kerala, more business is expected.
  • Muthoot expects the cost of funds to go up by 50 bps over the next 5-6 months. He is sure about costs remaining low and not going back to higher rates that were prevalent two years back. MUTHOOTFIN has been able to solve a good percentage of its borrowing cost to their customers to keep them satisfied because their businesses are also not doing that well.
  • MUTHOOTFIN will continue to support its customers and expects to see some growth in the business environment over the next few quarters.
  • As a result of MUTHOOTFIN’s work over the past few decades, it has become customers’ first choice for gold loans. They are seeing more and more players entering this sector which only shows that it is a good growth sector.
  • The gold loan market is expanding as customers have started considering gold loans for their business needs and this is expected to widen the market.
  • Once the economic activities pick up, Mr. Muthoot has observed that the new players in this sector lose interest as other forms of lending also go up. MUTHOOTFIN will continue to focus entirely on gold loans unlike other players as they believe this sector to be good in good as well as bad times.
  • As gold prices inch up, customers, as well as MUTHOOTFIN, get benefitted from these increased prices. The customer becomes eligible for more loans on the same gold and if and when, the customer abandons the gold, MUTHOOTFIN’s realizations from auctions of abandoned gold are improved as prices are higher.
  • MUTHOOTFIN can maintain its book as they factor in for steady-state or even a small fall in the gold price.
  • The only digital strategy that MUTHOOTFIN uses is digital interest payments, making top-ups or repaying the money. Customers are acquired digitally but they are required to give the collateral physically and then obtain loans or physically go to the branch to take back their gold.

Asset Multiplier Comments

  • Despite NPAs increasing since the last few quarters, MUTHOOTFIN is currently in a position to auction this gold and recover much better as gold prices have started going up.
  • With economic activity picking up, we expect steady growth in MUTHOOTFIN’s loan book.
  • Given the increase in competition in the gold loan sector, how MUTHOOTFIN maintains its position of being the customer’s first choice remains to be seen.

Consensus Estimate (Source: Marketscreener & investing.com websites)

  • The closing price of MUTHOOTFIN was Rs. 1,354/- as of 15-February-2022. It traded at 2.9x/2.4x/2x the consensus BVPS estimates of ₹ 455/551/663 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,844/- implies a P/BV Multiple of 2.7x on FY24E BVPS estimate of ₹ 663/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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06 Oct

70% rise in footfalls in Q2 – Muthoot Finance

Update on the Indian Equity Market:
On Monday Nifty closed 0.8% higher at 11,503. Among the sectoral indices IT (+3.5%), Metal (+2.6%), and Pharma(+1.7%) closed higher. Fin Services (-0.2%), Media (-0.2%), and PSU Bank (-0.1%) closed lower. Bajaj Finserv (-2.79%), Shree Cement (-2.8%), and Bharti Airtel (-2.0%) closed on a negative note. TCS (+7.6%), Wipro (+7.0%), and Tata Steel (+4.9%) were among the top gainers.
70% rise in footfalls in Q2 – Muthoot Finance
Excerpts from an interview of Mr.George Alexander Muthoot, MD, Muthoot Finance with CNBC-TV18 dated 1st October 2020:
● There is an increase in average daily footfall. The increase is by 70% as compared to Q1.
● Q2 is much better as more customers are coming to the branch as lockdown is lifted and travel is becoming possible.
● Customer transactions are also increasing. There is a 40% increase in customer transactions.
● There is a 10% increase in online transactions. Q1 also saw a rise in online transactions. The company did 3mn transactions in Q1.
● Muthoot Finance has started a new loan scheme with a free COVID-19 insurance policy.
● This scheme was started late in Q2 and in the southern branches. The company offered 46k COVID-19 policies to customers free of cost.
● The customers have a small ticket size. The average loan size is Rs 50,000.
● The company expects Q2 to be much better as there is a new loan disbursal as well.
● The company continues to maintain the guidance of 15% growth in the gold loans.
● On the home loans business, he said there was no new lending in Q1 and Q2. The company will start new lending going ahead. The recovery is 85-90% in the home loan business.
● People who took moratorium earlier have not utilized it fully and already paid installments.
● The customers are coming back for payments but the company will start lending in Q3 and Q4.
● On the change in LTV for banks, he said there is always a high competition in the gold loan sector. There is no decrease in business for the company.
Consensus Estimate: (Source: market screener website)
● The closing price of Muthoot Finance was ₹ 1,164/- as of 04-October-2020. It traded at 3.2x/ 2.6x/ 2.3x the consensus Book value per share estimate of ₹ 363/445/510 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Muthoot Finance is ₹ 1,300/- which implies a Pb multiple of 2.4 times on FY23E BVPS of ₹ 510/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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24 Aug

More than Rs 80 bn cash ready to take care of loan demand – Muthoot Finance

Update on the Indian Equity Market:
On Friday, Nifty50 ended higher at 11372 (+0.5%). Among the stocks, NTPC (+5.1%), POWERGRID (+4.6%), and ASIANPAINT (+4.4%) led the gainers. ZEEL (-3.7%), HINDALCO (-1.6%), and BHARTIARTL (-1.3%) led the losers. Among the sectoral indices, PSU BANK (+1.8%), BANK (+1.4%), and PRIVATE BANK (+1.3%) led the gainers. MEDIA (-1.4%), METAL (-0.6%), and IT (-0.3%) were the only losers.

Excerpts from an interview with Mr George Alexander Muthoot, MD, Muthoot Finance with ET Now on 20th August 2020:
• The past two months have been good and the going is great now as well. They are on track to reach or surpass the AUM estimate of about 15% growth. They are seeing good demand for gold loans since gold has been the buzzword recently. People are interested to associate with gold and gold financing is a part of it.
• Mr Muthoot believes it might be a little difficult for people to get credit via personal or housing loan, as lenders and NBFCs are not comfortable with fresh lending. Hence, for the next three-four quarters, there will be a good demand for gold loans.
• All their branches are open and people are able to come to the branches. The past two months has been a good growth period for their business and the momentum is likely to sustain. People are using gold to finance their requirements. Small businesses, small traders, and business people and individuals are using this.
• Gold price has also helped as people with lesser quantities of gold can have more gold loans in their hands. Unfortunately, the tonnage has not grown in line with the growth in AUM because newer loans need to bring only lesser quantities of gold.
• About 89-90% of the portfolio consists of gold loans which don’t have NPAs. NPAs are just loans which have crossed the threshold time limit. Auctioning the gold which is in NPAs is not beneficial as they have to refund money to the customer. Instead, they would give more time to the customer and pay it back and hold it as NPA in the books. None of the NPAs result in loan loss as the full interest and principal is recovered in time. This also keeps customers happy that their gold is not being auctioned off.
• For about 10% of the loan book which is in vehicle finance, housing finance, they have given moratorium to customers.
• Standard provisioning and loan loss provisioning is applicable to them just as to NBFCs. There are about Rs 10 bn provisions in terms of standard assets or loan loss provisions. This is just a technical provision and he never sees it converting into loan loss.
• There is no plan of acquiring any gold loan company since the average tenure is four months only. By the time negotiation with the company is done the loan would have gone off their books.
• The regular growth through 5,000 branches is sufficient for them because the average branch business is about Rs 10 crore and any branch can cater to double that. So an average of Rs 20 crore per branch is easily sustainable for them.
• In South India, both the public and private sector banks are advertising about giving gold loans. Banks coming into this space is good as it gives more credibility and visibility to this business. There are about 25,000 tons of gold in the market with the public and only about 3,000 tons is in the organised gold loan sector. Since there is a lot of gold which has not come into the gold loan market, there is a place for everybody.
Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of Muthoot Finance was ₹1,181/- as of 21-August-2020. It traded at 3.4x/ 2.7x the consensus book value estimate of ₹ 352/438 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 1,195/- implies a PB multiple of 2.8x on FY22E BV of ₹ 428/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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16 Dec

Gold financing is our core competency and will stick to it: Mr George Muthoot, MD, Muthoot Finance

Update on the Indian Equity Market:

On Friday, NIFTY ended 1% higher at 12,087. Among the sectoral indices, Nifty PSU Bank (+4%), Nifty Metal (+2.3%) and Nifty Realty (1.7%) were the biggest gainers. None of the indices ended in the red. The stocks rallied on the back of optimism over a trade deal between the US and China. Adding to the sentiment was the victory of the Conservative Party in the UK elections. Among the Nifty50 stocks, Axis Bank (+4.2%), Vedanta (+3.8%) and Hindalco (+3.6%) were the biggest gainers.  Dr Reddy’s Laboratories (-2.8%), Bharti Airtel (-2.0%) and Zee Entertainment Enterprises (-1.6%) were amongst the losers.        

Gold financing is our core competency and will stick to it: Mr George Muthoot, MD, Muthoot Finance

Excerpts from an interview with Mr George Alexander Muthoot, MD, Muthoot Finance published in Economic Times on 10th December 2019:

  • The core strength of the business is gold financing. 90 per cent of the portfolio is only gold loans. Focusing on their core competency is has helped them get good business till date.
  • Their business is not dependent on gold prices since the average tenure of the loans is four months. If there was a sudden movement like 50 per cent fall in gold prices in two-three months, it would be a problem. Small up or down movement in the prices does not affect their business.
  • Talking about the business opportunity, he said that the market is huge since there are 30,000 tonnes of gold lying as ornaments. The organised gold lending market is just about 100-200 tonnes.
  • As the market develops, more and more people are using the opportunity to monetise the idle gold. To attract new customers, they are undertaking a lot of advertising.
  • Moving on to the rationale behind purchasing IDBI’s AMC business, he says the company has good customers who have been investing in the company because they relate to the company and are confident of depositing their money with them. The company believes that if they were to start a mutual fund, they will retain their customers.
  • Although the company has guided for revenue growth of 15 per cent, they would probably achieve 15-20 per cent growth this year. Gold finance acts as bridge finance for people unable to get loans from the banks. Once people are able to obtain a bank loan, they replace the gold loan with it.
  • People have a variety of options to obtain financing. Microfinance or fintech finance has not affected the gold financing market.
  • Their focus is on customer convenience. The average ticket size is ₹ 40,000, there is no service charge or pre-payment charges.
  • On diversifying the core business, he said the gold loan is their core strength and they will stick to it. Mutual funds are just a service offered to the customers. It is just a way for customers to deposit their excess money.

Consensus Estimate (Source: market screener and investing.com websites)

  • The closing price of Muthoot Finance was ₹ 717/-  as of 13-December-19. It traded at 2.5 x/2.1 x/ 1.8 x the consensus book value per share (BVPS) of ₹ 285/ 338/ 397 for FY20E/21E/22E respectively.
  • Consensus target price of ₹ 779 implies a PB multiple of 1.9 x on FY22E BVPS of ₹ 397/-.
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26 Nov

Entering Mutual Fund Space to Cater to Customers’ ‘Changing Needs’ – Muthoot Finance CFO

Update on the Indian Equity Market:

On Monday, Sensex ended higher across-the-board buying and US-China trade talks optimism, Sensex gained 530 pts and Nifty ended at 12,079. News reports that China and the United States were ‘very close’ to a phase one trade deal, boosted investor sentiment further.

Among the sectors, all but media stocks ended in the green. Metal stocks rallied the most on renewed hopes of positive developments in US-China trade talks. The Nifty Metal index climbed over 3 per cent to 2,599 levels. Auto and Pharma stocks were next on the list. On the downside, Nifty Media index slipped over 1.5 per cent to 1,946 levels.

Among stocks, Bharti Airtel (up 7 per cent) emerged as the top gainer on the index while ONGC (down over 2 per cent) was the biggest loser. 

Entering Mutual Fund Space to Cater to Customers’ ‘Changing Needs’ –  Muthoot Finance CFO 
Key takeaways from the interview of Mr Oommen K Mammen, Chief Financial Officer, Muthoot Finance; dated 25th November 2019:

  • When asked about entering into the Mutual Fund space Mr Mammen said that Muthoot Finance Ltd.’s foray into mutual funds by acquiring IDBI Asset Management Ltd. will help cater to the changing needs of its two lakh customers.
  • Mammen told in an interview that if they don’t provide alternative investment products, customers might look into other opportunities.
  • He  stated that offering mutual fund options will help take care of their customer’s changing needs.
  • According to Mr Mammen, Mutual funds are the best asset class.
  • The acquisition worth Rs 2,150 mn is subject to regulatory approval and is expected to be completed by February next year.
  • Muthoot Finance will purchase 100 per cent equity shares of IDBI AMC and IDBI MF Trustee Company for a total consideration of Rs 215 crore, according to exchange data. IDBI Mutual Fund has an asset base of over Rs 5,300 crore. Muthoot Finance will acquire 66.67 per cent stake in IDBI AMC from IDBI Bank and 33.3 per cent from IDBI Capital Market & IDBI Securities.

Consensus Estimate (Source: market screener website)

  • The closing price of Muthoot Finance was ₹ 685/- as of 25-November-19 and traded at 10.5x /9.6x /8.2x the consensus EPS for FY20E / 21E / 22E of Rs 65/71/84 respectively.
  • Consensus target price of ₹ 765/- implies a PE multiple of 9x on FY22E EPS ₹ 84/-.
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18 Nov

Gold Loan NBFCs should not be clubbed together with other NBFCs- Muthoot Finance MD

Update on the Indian Equity Market:

On Friday, NIFTY50 ended marginally positive with a 0.2% rise. Bharti Infratel (+9.7%), Bharti Airtel (+9.2%) and SBI (+5.5%) were the top NIFTY50 gainers. Telecom stocks gained on talks of a minimum charge for all tariffs for telecom players. Indian Oil (-3.9%), Hero Motocorp (-1.9%) and BPCL (-1.9%) were among the worst-performing NIFTY50 stocks. NIFTY PSU BANK (+3.5%) recorded handsome gains after the Supreme Court’s verdict in the Essar Steel case in favour of financial lenders. NIFTY PHARMA (+1.6%), NIFTY MEDIA (+1.1%) and NIFTY BANK (+0.9%) were among the other gainers. NIFTY AUTO (-0.5%), NIFTY IT (-0.5%) and NIFTY FMCG (-0.5%) were among the top losing sectoral indices.


Muthoot Finance
Excerpts  from the interview of Mr George Alexander Muthoot, Managing Director,  Muthoot Finance; dated 14th November 2019. Source: CNBC TV18

  • Muthoot Finance had a somewhat tepid loan growth in 2QFY20 as the company faced some incremental funding issues.
  • Funding problem has now been resolved. Muthoot Finance has collected Rs 4,600 mn last month via a private placement. The company is planning another issue of retail NCDs of similar amount. The company also holds ECB of Rs 4,500 mn. All this is sufficient to help Muthoot reach its FY20E target.
  • Muthoot Finance had a funding problem despite having a good P&L and Balance sheet. Gold Loan NBFCs get clubbed with all other NBFCs. Muthoot suffered as banks/ other lenders have limits for issuing funding to particular sectors which get exhausted.  
  • Mr George Muthoot said he is trying his best to get a separate classification for Gold Loan NBFCs. Gold Loan NBFCs do not have 2 major issues that other NBFCs/ banks face. These factors are: a) No NPA problem. None of NPAs have resulted in credit loss. b) No Asset Liability Mismatch (ALM) issues as the average loan period is 3-4 months.
  • The first 6 weeks of 3QFY20 have already seen good growth with Rs 13,000 mn increase in Asset Under Management (AUM). Management expects good growth to continue in 2HFY20E.
  • Muthoot Finance will be able to show good growth as there are funding issues for many small traders and retail customers because NBFCs are not able to fund them. For these people, gold loans are most convenient to tide over their needs in the next couple of quarters.
  • Muthoot Finance is targeting to end FY20E with 15%+ AUM growth.
  • Apart from Gold loans, Muthoot has exposure to Retail home loans and Vehicle loans. Management has toned down it’s FY20E projection for home loans AUM from Rs 27,000-30,000 mn earlier to Rs 23,000 mn. Management is cautious on the growth in retail home loans as many projects are stuck due to funding issues at builders’ end.
  • Muthoot has a Rs 4,500 mn vehicle finance portfolio. As per management, now is not the best of times to grow this segment aggressively.
  • Muthoot benefitted from the rise in gold prices as customers were willing to take back gold, leading to lower auctions and higher interest collections. This led to higher NIMs in 2QFY20E.
  • Muthoot increased interest rate by 1% 3 months back which also led to better yields in 2QFY20. This benefit will continue going forward.
  • Management expects to maintain spread target of 11% and NIM target of 11%-12% in FY20E.

Consensus Estimate (Source: market screener website)

  • The closing price of Muthoot Finance was ₹ 701/- as of 15-November-19 and traded at 2.4x /2.0x /1.8x the consensus BVPS for FY20E / 21E / 22E of Rs 287/344/400 respectively.
  • Consensus target price of ₹ 726/- implies a PB multiple of 1.8x on FY22E BVPS of ₹ 400/-.
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