Muthoot Finance shines; pandemic drives gold loan demand

Gold loan lender Muthoot Finance Ltd didn’t disappoint its investors. In fact, its Jan-Mar quarter performance bettered street expectations. It’s consolidated net profit grew 52.4% to Rs 835.78 crore in the last quarter of the fiscal ended March 2020 due to higher demand for gold loans.

It had posted a net profit of Rs 548.56 crore during the corresponding January-March quarter of fiscal ended March 2019.

Total income during March quarter of FY20 rose to Rs 2,633.58 crore from Rs 2,088.84 crore in the year-ago period. Of this, the interest income was Rs 2,562.96 crore, up from Rs 2,017.81 crore a year ago.

The southern India-based lender’s asset under management grew 22% on year and a 15% fall in provisions helped boost net profit. The fall in provisions is a fallout of a drop in bad assets.

The company’s loans under stage three of estimated credit loss dropped for the second straight quarter and formed just 2.16% of total loans. Stage three assets are those loans where the repayments are overdue beyond 90 days.

Muthoot Finance did exceedingly well during the pandemic as gold, as an asset class, gains value during crises and makes borrowing against it easier.

The gold loan providers current provisions are enough to cover any risks arising from the pandemic. In fact, it has excess provisions totalling Rs 295.4 crore.

For fiscal year 2019-20, the company reported a 51% jump in consolidated net profit at Rs 3,168.68 crore as against Rs 2,102.96 crore in 2018-19. Income for the year increased to Rs 9,683.98 crore from Rs 7,594.43 crore in the previous fiscal.

The company was able to open majority of its branches from April 20, and as of now all branches are functioning normally.

Meanwhile, the initial pent-up demand for gold loans is now normalising. While Muthoot Finance is expected to do well, its subsidiaries that lend non-gold loans are expected to suffer. That could put pressure on the group level net profit in the coming quarters

The company’s board of directors declared an interim dividend of Rs 15 per share for 2019-20.

Net net we expect FY21 to be another strong year ahead for Muthoot Finance led by the fact that AUM growth is steady, and overall disbursement of loans according to the management is expected to recover faster fromk July 2020 onwards thus more than making the shortfall seen in April & May when the lockdown was announced.

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