Muthoot Finance Sizzles on Strong Q3 Show

Muthoot Finance has been gaining strength on strong earnings performance over the last 12 quarters, especially after the demonetization drive, which led to a formalization in banking, financial services resulting in tight liquidity conditions.

The scenario triggered borrowing against gold following the tight norms by the Reserve Bank of India.

Struggling economic conditions resulted in rising demand for risk-averse assets such as gold. As such prices of yellow metal rallied to new highs, which in turn boosted the performance of gold financiers.

Muthoot Finance reported a 66% jump in consolidated net profit to Rs 803 crore in the third quarter ended December 31. Its net profit was at Rs 485 crore in the corresponding October-December period of 2018-19.

Total income increased by 35% to Rs 2,313 crore during the reported quarter of 2019-20 from Rs 1,717 crore in the year-ago period.

The company’s loan portfolio registered an increase in net profit of 50% to Rs 2,191 crore for the nine months of FY20 as against Rs 1,461 crore in the previous year.

Loan assets stood at Rs 38,498 crore as on December 31, 2019, compared to Rs 32,470 crore as on December 31, 2018, a growth of 19%.

During the third quarter, gold loan assets increased by Rs 2,783 crore. The net interest margin (NIM) at 17.1%, which is the highest in the last 12 quarters.

Gold loan AUM stood at Rs377bn, up 19% YoY/8% QoQ. The growth was led by a combination of an increase in prices and gold holdings. For the quarter, the gold holding was 173 tonnes, up 4.2% YoY/1.2% QoQ.

YTD, the gold AUM is up 12% compared to 10% in FY19. Given the strong growth in Q3FY20, the company seems to have more than made up for the momentum lost in Q2FY20 when the gold book growth was 9% YoY

For FY21, the management has reiterated AUM growth of more than 15%. The home loan portfolio stood at Rs20bn, up 10% YoY but down 3.5% QoQ.

The company is targeting a home loan portfolio of Rs22bn by Q4FY20-end, which implies a growth of 15.3% over FY19.

Disbursements in the home loan portfolio were Rs1bn, down 31.6% YoY/5.3% QoQ. The reason for the drop in disbursements is on account of cautious lending since the market sentiment in the company’s target market has deteriorated.

Belstar Microfinance has also reported an AUM of Rs22.8bn, up 46% YoY. While Credit growth guidance stands at >15% for FY20. For FY21, the company has guided for a minimum of 15% growth.

Net net we understand that the Gold Finance segment is likely to do well for Muthoot Finance in the coming year on the back of higher offtake and better liquidity with the company ahead.

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