Gold loan financier Muthoot Finance seems to have bright prospects in the near future given the Kerala-based company’s financial strength and market reach.
The July-September quarter earning underlines Muthoot’s strength to perform in highly uncertain markets conditions.
Muthoot clocked a 42% rise in profit before tax, at Rs 1,115.9 crore while total income grew 32% to Rs 2,406.3 crore. The consolidated loan assets of the group grew by 13% at Rs 40,390 crore during the first half of FY20. Loan Assets stood at Rs 35,731 crores, up 11% during the first six months of the current fiscal.
Last month, Muthoot Finance through its maiden bond sale raised $450 million by selling foreign currency bonds to international investors across the globe.
The Kerala based company raised the amount at 6.125% fixed rate, mainly due to strong demand from investors.
The company has seen good growth in gold loans in Oct and Nov. The management has reiterated their guidance of gold loans to grow at 15% YoY in FY20.
The management has indicated that yield would stabilize at ~21% going ahead. As a result, NII grew by 29% YoY.
The borrowing cost stood at 9.3% and the management expects the CoF to further inch up to 9.5% in H2FY20. Higher borrowing cost can be attributed to forex borrowing and higher rate domestic borrowing which includes a NBFC risk premium component.
The NCDs raised by the company are expected to help keeping the cost of funds on the lower side.
NIMs during the qtr stood at 14.25%. The Kerala portfolio is currently only 3.4% of the total book. The company is looking to run down the book and the exposure to the state of Kerala is at Rs. 1200 Cr vs Rs. 1600 Cr in Q1FY20.
In terms of Asset quality however this deteriorated both on a sequential and YoY basis. GNPA stood at 3.43% vs 3.2%. However, the company has seen an improvement in collection efficiency from an historical avg of Rs. 5600 Cr to Rs. 6900 Cr.
The other subsidiaries which include Muthoot Money which is engaged in the vehicle finance business also saw strong growth in AUMs. AUMs stood at Rs. 426 Cr va Rs. 65.8 Cr in Q2FY19.
Belstar Microfinance Muthoot’s microfinance business also saw a good AUM growth of 53% YoY and has also witnessed improvement in asset quality.
We continue to remain positive on Muthoot Finance & the Gold Loan segment in particular as unlike pure NBFC companies, Muthoot has very strong collaterals in the form of Gold which reduces the risk of bad loans significantly.
Also with funding constraints now out, we expect the H2 of FY20 to be more stronger in terms of business growth and profitability trends going ahead.