Muthoot Finance

Brief Company Introduction

Muthoot Finance Limited operates as a gold financing company in India. It provides personal and business loans secured by gold jewelry, or gold loans primarily to individuals; micro finance; and loans to landlords. The company also offers gold coins, money transfer, foreign exchange, insurance, ATM, wealth succession, and housing finance services; mutual funds and non-convertible debentures; and wealth management services, including risk evaluation, client evaluation, value analysis, and consultancy.
As of March 31, 2020, the company operated approximately 4,567 branches in 29 states. Muthoot Finance Limited was founded in 1887 and is headquartered in Kochi, India.

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company saw a weak quarter with consolidated revenue de-growing 3% YoY and Profits de-growing 2% YoY.
2. The consolidated gross loan assets for the company grew 11% YoY.
3. The total number of branches stood at 5581.
4. The GLA growth for the company’s different businesses was:

1. Muthoot Finance: Up 10% YoY
2. Muthoot Homefin: Down 14% YoY
3. Belstar Microfinance: Up 32% YoY
4. Muthoot Money: Down 44% YoY
5. Asia Asset Finance: Down 13% YoY

1. Cash and cash equivalents for the company at the consolidated level were at Rs 10035.8 Cr as of march ‘22.
2. The consolidated interest income grew 6% YoY.
3. 33.8% of gold loan customers are transacting online. Interest income in standalone business grew 6% YoY.
4. The company has total funding of Rs 48970.1 Cr through various means like debt, NCDs, etc.
5. The company has around 187 tonnes of gold kept as security.
6. The gold loan portfolio distribution is North @ 17%, South @ 60%, East @ 7%, and West @ 16%.
7. Average monthly disbursement and collection were at Rs.112 & 100 billion respectively 
8. The company has 5.31 million active customers.
9. The company saw a net interest margin of 12.21% & an interest spread of 10.91% in Q4FY22.
10. ROA was at 6.81% in Q4. 
11. Opex to AUM was at 3.19%. ROE was at 21.48%.
12. Muthoot maintained a CAR of 29.97% with 29.10% being Tier I.
13. The book value per share was Rs.456.98.
14. Muthoot Homefin saw NIM of 6.16% and cost to income ratio of 56.76%.  

Investor Conference Call Highlights

1. The company consciously adopted lower yields to acquire more customers in the current quarter.
2. It has discontinued the teaser rate loans & now plans to capitalize on the new customers.
3. The auctions for the quarter are Rs.2,100 Cr and accrued interest is Rs.2,071 Cr.
4. The company is looking to maintain spreads in the range of 10%.
5. The management states that since 75% of its portfolio in Srilanka is from the gold loan segment & since prices of gold have shot up in that part due to the currency crisis, the loan book in Srilanka is very safe.
6. The management believes that the situation of Srilanka’s economy is not as bad as what newspapers are articulating & it expects the demand to revive strongly.
7. The management expects to maintain its guidance of 12-15% credit growth in the coming FY.
8. The management states that the company is facing delays in getting approvals for new branch openings from RBI.
9.  The company’s loan book comprises loans above INR 1 lakh @ 58% and loans below INR 1 lakh @ 42 per cent.
10. The management believes that increased competition from banks in the gold loan segment will also help in attracting more customers to the gold loan sector.

Analyst’s View

Muthoot Finance is the leader in the gold loan industry. The company has cemented its market position by growing its core business consistently and maintaining its momentum. The company posted mediocre quarterly results with sales de-growth of 3% YoY and profit de-growth of 2% YoY. The management is expecting good growth in the coming quarters due to the further opening of the economy. The management Is maintaining its guidance of 12-15% revenue growth for FY23. It remains to be seen how the company would mitigate the risk of further decline in gold prices, the rising interest rate environment, and the increased competition in this industry. Nonetheless, given the company’s resilient customer base, resilient brand image, and gold loan AUM, Muthoot Finance seems like a pivotal finance stock to watch out for.

Q3FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company saw a weak quarter with consolidated revenue growing 5% YoY and Profits growing 3% YoY.
2. The consolidated gross loan assets for the company grew 9% YoY.
3. The total number of branches stood at 5439.
4. The GLA growth for the company’s different businesses was:
   1. Muthoot Finance: Up 9% YoY
   2. Muthoot Homefin: Down 16% YoY
   3. Belstar Microfinance: Up 33% YoY
   4. Muthoot Money: Down 44% YoY
   5. Asia Asset Finance: Up 10% YoY
5. Cash and cash equivalents for the company at the consolidated level were at Rs 9046.5 Cr as of September ‘21.
6. The consolidated interest income grew 5% YoY.
7. 8% of gold loan customers are transacting online. Interest income in standalone business grew 3% YoY.
8. The company has total funding of Rs 48830.9 Cr through various means like debt, NCDs, etc.
9. The company has around 178 tons of gold kept as security.
10. The gold loan portfolio distribution is North @ 22%, South @ 50%, East @ 9%, and West @ 19%.
11. Average monthly disbursement and collection were at Rs.104 & 106 billion respectively
12. The company has 5.42 million active customers registering a de growth of 1% QoQ.
13. The company saw a net interest margin of 13.74% & an interest spread of 12.61% in Q3FY22.
14. RoA was at 7.99% in Q3.
15. Opex to AUM was at 3.72%. RoE was at 24.36%.
16. Muthoot maintained a CAR of 29.94% with 28.96% being Tier I.
17. The book value per share was Rs 433.74.
18. Muthoot Homefin saw NIM of 5.95% and cost to income ratio of 62.43%.

Investor Conference Call Highlights

1. The management is confident of maintaining yields despite a rising interest rate environment in the future as their customers especially small ones are not that interest sensitive.
2. The management expects the next leg of growth will come primarily from economic recovery as the current base of Rs.55,000 Cr loan book is already very big.
3. The management believes that branches can be used to drive higher growth by simply adding more employees & due to the increase in per customer ticket size, growth is strong.
4. The company auctioned Rs.2800 Cr of gold of roughly 4 lakh customers having a ticket size of 60-70K.
5. LTV for the quarter was at 69%.
6. The LTV of stage 2 loans if the interest on those loans is also capitalized leading to LTV of 90-95%.
7. The cost of funds is currently 7.25-7.5% & is expected to further decrease due to change in borrowing mix along with payment of old long-term borrowings raised at higher costs.
8. The company added 3.5 lakh new borrowers however net borrowers decreased by 2%.
9. The management believes that customers choose Muthoot due to its goodwill & fast processing of loans instead of customer relationships.
10. 20% of loan book consist of people having ticket size > Rs.10 lakh.
11. The management expects the company to not meet the guidance number of 15% revenue growth in the current FY & is expecting to clock a growth of close to 9-10% in the current FY.

Analyst’s View

Muthoot Finance is the leader in the gold loan industry. The company has cemented its market position by growing its core business consistently and maintaining the momentum. The company posted mediocre quarterly results with sales growth of 5% YoY and profit growth of 3% YoY. The management is expecting good growth in the coming quarters due to the further opening of the economy. The cost of funds is expected to decline from current levels given the expiry of old debt that were issued at higher interest rates. The management has also reduced its guidance of 15% revenue growth to 10% for FY22. It remains to be seen how the company would mitigate the risk of further decline in gold prices, the rising interest rate environment, and the increased competition in this industry. Nonetheless, given the company’s resilient customer base, resilient brand image, and gold loan AUM, Muthoot Finance seems like a pivotal finance stock to watch out for.

Q2FY22 Highlights

Detailed Results:

1. The company saw a decent Q2 with consolidated revenue growing 8.5% YoY and Profits growing 8% YoY.
2. The consolidated gross loan assets for the company grew 17% YoY.
3. The total number of branches stood at 5439.
4. The GLA growth for the company’s different businesses was:

1. 1. 1. Muthoot Finance: Up 17% YoY
      2. Muthoot Homefin: Down 15% YoY
      3. Belstar Microfinance: Up 25% YoY
      4. Muthoot Money: Down 39% YoY
      5. Asia Asset Finance: Up 4% YoY

5. Cash and cash equivalents for the company at the consolidated level were at Rs 8251.4 Cr as of September ‘21.
6. The consolidated interest income grew 13% YoY.
7. 4% of gold loan customers are transacting online. Interest income in standalone business grew 14% YoY.
8. The company has total funding of Rs 48830.9 Cr through various means like debt, NCDs, etc.
9. The company has around 178 tons of gold kept as security.
10. The gold loan portfolio distribution is North @ 22%, South @ 50%, East @ 9%, and West @ 19%.
11. Average monthly disbursement and collection were at Rs 5200 Cr.
12. The company has 5.42 million active customers registering a growth of 3% QoQ.
13. The company saw a net interest margin of 13.46% & an interest spread of 12.64% in Q2FY22.
14. RoA was at 7.8% in Q2.
15. Opex to AUM was at 3.72%. RoE was at 25.04.
16. Muthoot maintained a CAR of 27.6% with 26.66% being Tier I.
17. The book value per share was Rs 407.86.
18. Muthoot Homefin saw NIM of 6.59% and cost to income ratio of 54.46%.

Investor Conference Call Highlights

1. The management expects yields to remain in the range of 21-23%.
2. The company is expected to witness good demand in the coming quarters due to restarting of the economy.
3. The company incurred Rs 217 Cr worth of loss due to auctioning this quarter.
4. The company is offering short-term teaser rates due to increased competition from banks which it didn’t use to face earlier.
5. The management expects the Opex to AUM to remain stable at around 3.5% since further costs decrease are not possible.
6. The management looks at better yields and lower cost of funding as the key source of operating leverage due to growth.
7. The management believes that the entire gold loan industry can grow by >15% in the coming years.
8. The management is giving guidance of 15% YoY growth.
9. The average LTV at the time of disbursal is in the range of 70-75%.
10. The company borrows funds for short-term borrowings through commercial papers and long-term borrowings are done using bank term loans, external commercial bonds & NCDs. Thus the company can maintain a healthy mix of fixed & floating rates of loans according to the management.
11. The company has current leverage of only 2.5 times; however, the management is targeting leverage of 5 times in the long term.
12. Stage 2 loans are at Rs 6153 Cr or roughly 11% of the total loan book.
13. Interest accrued is INR 2,384 crores.
14. The management believes that even though a bank might offer lower charges, but it also incurs additional charges & the NBFC’s compete with them due to their customer-centric activities.
15. The management mentions that delay in RBI approvals is not the reason behind tepid branch expansion activities.
16. The management believes that even though gold loans have lower NPA’s, they have a lot of operational side difficulties which will be faced by banks and other NBFC’s after their branch expands.
17. The management states that they are not concerned about customers moving to an alternative player or a bank because there is a niche market available for the company Thus, they’ll be able to grow despite the competition.
18. The company plans to open about 100, 150 branches in the next 12 months.

Analyst’s View

Muthoot Finance is the leader in the gold loan industry. The company has cemented its market position by growing its core business consistently and maintaining the momentum. The company posted mediocre quarterly results with sales growth of 8.5% YoY and profit growth of 8% YoY. The management is expecting good growth in the coming quarters due to the further opening of the economy. The management remains confident of surpassing the 15% revenue growth target for FY22. It remains to be seen how the company would mitigate the risk of further decline in gold prices, the potential of lockdowns due to a third wave, and the increased competition in this industry. Nonetheless, given the company’s resilient customer base, resilient brand image, and gold loan AUM, Muthoot Finance seems like a pivotal finance stock to watch out for.

Q1FY22 Highlights

Detailed Results:

1. The company saw a good Q1 with consolidated revenue growing 14% YoY and Profits growing 14% YoY.
2. The consolidated gross loan assets for the company grew 25% YoY.
3. The total number of branches grew to 5443 from 5330 a year ago.
4. The GLA growth for the company’s different businesses was:

1. 1. 1. Muthoot Finance: Up 27% YoY
      2. Muthoot Homefin: Down 14% YoY
      3. Belstar Microfinance: Up 19% YoY
      4. Muthoot Money: Down 33% YoY
      5. Asia Asset Finance: Down 2% YoY

5. Cash and cash equivalents for the company at the consolidated level were at Rs 8718 Cr as of June ‘21.
6. The consolidated interest income grew 15% YoY.
7. 5% of gold loan customers are transacting online. Interest income in standalone business grew 16% YoY.
8. The company has total funding of Rs 47812 Cr through various means like debt, NCDs, etc.
9. The company has around 171 tons of gold kept as security.
10. The gold loan portfolio distribution is: North @ 22%, South @ 50%, East @ 9% and West @ 19%.
11. Average monthly disbursement and collection were at Rs 5200 Cr.
12. The company has 5.24 million active customers.
13. The company saw a net interest margin of 12.93% & an interest spread of 12.21% in Q1FY22.
14. RoA was at 7.99% in Q1. GNPA was at 1.22% while NNPA was at 0.02%.
15. Opex to AUM was at 3.92%. RoE was at 27.7.
16. Muthoot maintained a CAR of 27.32% with 26.26% being Tier I.
17. The book value per share was Rs 383.33.
18. Muthoot Homefin saw NIM of 5.5% and cost to income ratio of 47.5%.

Investor Conference Call Highlights

1. The gold loan business was flat QoQ in Q1, but the management expects momentum to come back to the business and the industry in the rest of the year.
2. The insurance broking business is seeing good momentum.
3. The gold loan portfolio is at above 53% of the total book for Muthoot.
4. The company is aiming to bring up the gold loan business in Sri Lanka to 90% of the assets for Asia Asset Finance.
5. The management states that the major reason for the tepid growth in the gold loan business was the shutdown of branches and local lockdowns in Q1 due to COVID-19.
6. The company did Rs 37 Cr of auctions in Q1.
7. The management expects to see a decline in borrowing costs in the next 1 or 2 quarters.
8. The management states that it prefers to hold on to excess liquidity in uncertain times and that Muthoot should be able to increase yields on idle funds going forward.
9. The management states that auctions are a normal part of the industry and there aren’t any issues with the frequency of auctions.
10. The management maintains yearly growth guidance of 15% but it is confident of surpassing this target.
11. The management expects pent-up demand to come in the coming quarters as it did last year when Q1 was subdued due to the first wave of COVID-19.
12. The demand for the gold loan comes back as normal small business activity resumes according to the management. Business activity has remained subdued only in Kerala which accounts for only 3% of the portfolio.
13. The management states that keeping the LTV low enough is key for the company as it can keep in contact with its customers and get them to pay up using both engagement and incentives. The new players who have offered LTV as high as 90% will not be able to get customers to pay back as frequently and will probably have to resort to auctioning.
14. Other loans in the standalone entity are unsecured personal loans of Rs 330 Cr.
15. The ECL provision in June was at Rs 650 Cr. The total provisioning in Q1 was at Rs 945 Cr for Muthoot Finance. At the consolidated level, this is at close to Rs 1100 Cr.
16. The company had Rs 1006 Cr in employee expense in FY21 and the FY22 wage bill is also expected to be at the same level.
17. The NIM in Q1 was down due to various promotions and discounts on offer according to the management. It also expects the RoA to stay in the range of 7-8% going forward.
18. The management has clarified that more than 70% of gold loan customers are using online means for some part of the loan process but they are not doing 100% of everything online as these customers prefer to come to the branch and do the process. But onboarding even in branches has become fully online.
19. Penal interest is a very negligible part of the interest income according to the management.
20. The management has stated that Muthoot is not fazed by the increasing competition in the gold loan space and that its brand and service quality should help it keep its edge even in the crowded industry.
21. The yields can rise, and fall based on various demand factors like market conditions, festive season or school opening season, geographies, etc.

Analyst’s View

Muthoot Finance is the leader in the gold loan industry. The company has cemented its market position by growing its core business consistently and maintaining the momentum. The company posted good quarterly results with sales growth of 14% YoY and profit growth of 14% YoY despite the loss in operations at branches due to the 2nd wave of COVID-19. The management is expecting good growth in the coming quarters due to the further opening of the economy after the second wave and pent-up demand from Q1. The management remains confident of surpassing the 15% revenue growth target for FY22. It remains to be seen how the company would mitigate the possible risk of further decline in gold prices, the potential of lockdowns due to a third wave, and the increased competition in this industry. Nonetheless, given the company’s resilient customer base, resilient brand image, and gold loan AUM, Muthoot Finance seems like a pivotal finance stock to watch out for.