Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Muthoot Finance (MUTH)
Banks/Financial Institutions
Strong results, retain BUY. Muthoot Finance reported PAT of Rs2.5 bn, up 77% yoy
and 2% above estimates. Strong (66% yoy) growth in loan book, somewhat lower NIM
and operating expenses were key drivers. We revise estimates to factor higher margins;
retain BUY will price target of Rs240 (Rs230 earlier). Sharp decline in gold prices
provides a risk to growth and earnings.
Strong loan growth continues
Muthoot Finance reported a loan book (including loans sold down) of Rs229 bn, up 66% yoy. On
a qoq basis the company added Rs19 bn; this is lower than Rs29 bn added in 2QFY12 but in line
with 1QFY12 (likely a seasonal, trend). We continue to model Rs22 bn loan book addition in
4QFY12. We continue to model 58%, 25% and 13% loan growth in FY2012, FY2013 and
FY2014 respectively, against over 100% growth over the past two years. If Muthoot’s growth
traction remains strong and the regulatory proposals are finalized (as discussed later), the company
is likely to need to raise capital.
NIM moderate in 3QFY12
Muthoot reported NIM of 10.8% in 3QFY12 against 11.4% in 2QFY12 and 11.2% in 1QFY12 and
10.4% in 3QFY11. This was higher than 10% expected by us. Cost of borrowings increased
further to 11.6% from 11.2% in 2QFY12. The company had raised lending rates in 3QFY11
offsetting 290 bps rise in borrowings cost in the last four quarters.
In light of likely moderation in bulk borrowings rates and better-than-expected margin
performance, we are revising up our NIM estimates for next two years by 50 bps.
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. The
company has been selling down loans to banks (without PSL benefits) over the last few months.
Loans outside balance sheet were Rs24 bn as compared to Rs26 bn in September 2011 and Rs34
bn as on December 2010. We however believe the company will find it challenging to sell-down
loans if the proposed revised draft securitization guidelines are implanted by RBI; the regulator
proposes to ban loan sell-down for assets that have bullet repayment and increase minimum
holding period for loans sold down by NBFCs to banks.
Retain BUY rating
We retain our BUY rating on Muthoot with price target of Rs240 (33% upside). At our target
price, Muthoot will trade at 8.7X PER and 2.2XPBR FY2013E for 26% EPS CAGR between FY2011
and FY2014E and 28-30% RoE
Other highlights of the quarter
Gross NPLs were stable qoq at 0.57% in December against 0.59% in September 2011 but
higher than 0.30% in December 2010. While the rise in NPLs over last two quarters is
concerning, the overall NPL levels remain low.
Operating expenses ratio declined to 3.9% of average assets from 4.6% in 2QFY12. The
company set up 747 branches over the past nine months and higher expenses of these
branches affected the ratio for the quarters.
As on September 2011, capital adequacy was 18.33% up from 18.24% in September 2011.
In case annual growth exceeds 60-70%, the company will need to approach the capital
markets over next 4-6 quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Muthoot Finance (MUTH)
Banks/Financial Institutions
Strong results, retain BUY. Muthoot Finance reported PAT of Rs2.5 bn, up 77% yoy
and 2% above estimates. Strong (66% yoy) growth in loan book, somewhat lower NIM
and operating expenses were key drivers. We revise estimates to factor higher margins;
retain BUY will price target of Rs240 (Rs230 earlier). Sharp decline in gold prices
provides a risk to growth and earnings.
Strong loan growth continues
Muthoot Finance reported a loan book (including loans sold down) of Rs229 bn, up 66% yoy. On
a qoq basis the company added Rs19 bn; this is lower than Rs29 bn added in 2QFY12 but in line
with 1QFY12 (likely a seasonal, trend). We continue to model Rs22 bn loan book addition in
4QFY12. We continue to model 58%, 25% and 13% loan growth in FY2012, FY2013 and
FY2014 respectively, against over 100% growth over the past two years. If Muthoot’s growth
traction remains strong and the regulatory proposals are finalized (as discussed later), the company
is likely to need to raise capital.
NIM moderate in 3QFY12
Muthoot reported NIM of 10.8% in 3QFY12 against 11.4% in 2QFY12 and 11.2% in 1QFY12 and
10.4% in 3QFY11. This was higher than 10% expected by us. Cost of borrowings increased
further to 11.6% from 11.2% in 2QFY12. The company had raised lending rates in 3QFY11
offsetting 290 bps rise in borrowings cost in the last four quarters.
In light of likely moderation in bulk borrowings rates and better-than-expected margin
performance, we are revising up our NIM estimates for next two years by 50 bps.
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. The
company has been selling down loans to banks (without PSL benefits) over the last few months.
Loans outside balance sheet were Rs24 bn as compared to Rs26 bn in September 2011 and Rs34
bn as on December 2010. We however believe the company will find it challenging to sell-down
loans if the proposed revised draft securitization guidelines are implanted by RBI; the regulator
proposes to ban loan sell-down for assets that have bullet repayment and increase minimum
holding period for loans sold down by NBFCs to banks.
Retain BUY rating
We retain our BUY rating on Muthoot with price target of Rs240 (33% upside). At our target
price, Muthoot will trade at 8.7X PER and 2.2XPBR FY2013E for 26% EPS CAGR between FY2011
and FY2014E and 28-30% RoE
Other highlights of the quarter
Gross NPLs were stable qoq at 0.57% in December against 0.59% in September 2011 but
higher than 0.30% in December 2010. While the rise in NPLs over last two quarters is
concerning, the overall NPL levels remain low.
Operating expenses ratio declined to 3.9% of average assets from 4.6% in 2QFY12. The
company set up 747 branches over the past nine months and higher expenses of these
branches affected the ratio for the quarters.
As on September 2011, capital adequacy was 18.33% up from 18.24% in September 2011.
In case annual growth exceeds 60-70%, the company will need to approach the capital
markets over next 4-6 quarters.
No comments:
Post a Comment