Muthoot Finance - Growth Revival in Sight; NIMs Under Pressure; Result Update Q3FY15 :: Edelweiss

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Muthoot Finance’s (Muthoot) PAT of INR1.5bn came in below estimates owing to slower traction at NII level - a function of NIMs’ decline and slower-than-expected AUM traction (accretion in gold loan AUMs was restricted to INR3.2bn versus INR3.9bn in Q2FY15, despite lower auctions and various initiative to drive sales). Key highlights were: 1) continuing the trend (~38bps QoQ decline in H1FY15), NIMs came in lower at 9.8%; (2) post the Q2FY15 blip, GNPLs fell to 1.96%, as guided by management; and (3) focus on cost control has started to yield some benefits with opex growth curtailed at 3% YoY. Emerging certainty on AUM growth following stabilising gold price, customer acquisition push at branch level and strategic tie-up with Yes Bank will lend fillip to revenues. Considering lower traction on AUMs and NIM compression, we prune our FY15E/FY16E earnings by 11%/15%. In light of valuations of 1.4x FY17E BV with RoE generation ability of ~17% in FY17E.

AUMs: Slower-than-anticipated recovery; outlook positive

Q2FY15 was marked by Muthoot’s return to AUM accretion post 5 quarters of QoQ dip. We had anticipated higher AUM accretion in Q3FY15 on account of management’s initiatives and lower auctions. Growth was however, restricted to 1.3% QoQ. Going ahead, management expects enhanced traction in growth as various measures (focused sales efforts, newer products and normalised auctions, among others) start yielding result.  We are building in 14% AUM growth over FY14-17E.

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https://www.edelweiss.in/research/Muthoot-Finance--Growth-Revival-in-Sight;-NIMs-Under-Pressure;-Result-Update-Q3FY15/28113.html