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Muthoot Finance Limited
Business momentum strong; regulations remain an
overhang
Results highlights
Muthoot Finance Ltd. (Muthoot) for the quarter reported a PAT of INR2.5bn (+61% YoY
and +17% QoQ) and the same was above street expectations. This was on the back of
strong growth in net interest income (aided by 66% loan growth) and lower operating
expenses. However, despite yield on assets being stable, NIMs exhibited a 60bps
QoQ decline because of high cost borrowings during the quarter. Overall, operating
performance was strong, but sharp decline in gold prices and adverse regulations pose
challenges to growth as well as earnings.
Strong loan growth momentum continues
Loan growth continues to remain buoyant and Muthoot reported loan book (including
loans sold down) of INR222bn, up 66% YoY and 9.3% QoQ. During the quarter, it
garnered incremental lending of INR19bn (INR29bn in 2QFY12, translating into a
YTD loan growth of 44%. However, loan growth is expected to moderate due to high
base effect. Additionally, the company in face of volatile gold prices has enhanced risk
management metrics and have reduced its LTV to 68%, to tackle the same.
Strong NII growth; NIMs decline on high borrowing cost
NII registered a strong growth of 64% YoY (7% QoQ) despite a spike up in interest
expenses (+126% YoY; +16% QoQ). NIMs stood at 10.81% in 3QFY12 as compared to
11.4% in 2QFY12 and 11.2% in 2QFY11. The compression in NIMs were because of
sharp jump in borrowing costs during the quarter. Muthoot had raised lending rates in
3QFY12 to offset sharp rise in borrowings costs. The removal of agriculture priority-sector
status for gold-loan NBFCs has raised concerns on financial flexibility of gold-loan NBFCs.
Muthoot has not faced any significant pressure as yet. However, we believe that the
company will find it challenging to sell down loans if the proposed revised draft
securitization guidelines are implemented. The regulator has also proposed to ban loan
sell-down for assets that have bullet repayment and increase minimum holding period
for loans sold down by NBFCs to banks.
Valuation
The stock is trading at a valuation of 1.7x FY13e P/B and 6.2x P/E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Muthoot Finance Limited
Business momentum strong; regulations remain an
overhang
Results highlights
Muthoot Finance Ltd. (Muthoot) for the quarter reported a PAT of INR2.5bn (+61% YoY
and +17% QoQ) and the same was above street expectations. This was on the back of
strong growth in net interest income (aided by 66% loan growth) and lower operating
expenses. However, despite yield on assets being stable, NIMs exhibited a 60bps
QoQ decline because of high cost borrowings during the quarter. Overall, operating
performance was strong, but sharp decline in gold prices and adverse regulations pose
challenges to growth as well as earnings.
Strong loan growth momentum continues
Loan growth continues to remain buoyant and Muthoot reported loan book (including
loans sold down) of INR222bn, up 66% YoY and 9.3% QoQ. During the quarter, it
garnered incremental lending of INR19bn (INR29bn in 2QFY12, translating into a
YTD loan growth of 44%. However, loan growth is expected to moderate due to high
base effect. Additionally, the company in face of volatile gold prices has enhanced risk
management metrics and have reduced its LTV to 68%, to tackle the same.
Strong NII growth; NIMs decline on high borrowing cost
NII registered a strong growth of 64% YoY (7% QoQ) despite a spike up in interest
expenses (+126% YoY; +16% QoQ). NIMs stood at 10.81% in 3QFY12 as compared to
11.4% in 2QFY12 and 11.2% in 2QFY11. The compression in NIMs were because of
sharp jump in borrowing costs during the quarter. Muthoot had raised lending rates in
3QFY12 to offset sharp rise in borrowings costs. The removal of agriculture priority-sector
status for gold-loan NBFCs has raised concerns on financial flexibility of gold-loan NBFCs.
Muthoot has not faced any significant pressure as yet. However, we believe that the
company will find it challenging to sell down loans if the proposed revised draft
securitization guidelines are implemented. The regulator has also proposed to ban loan
sell-down for assets that have bullet repayment and increase minimum holding period
for loans sold down by NBFCs to banks.
Valuation
The stock is trading at a valuation of 1.7x FY13e P/B and 6.2x P/E.
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