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Muthoot Finance Q4FY20 – As Good as Gold
1) Gold Loan growth YoY = 21%
2) NII growth YoY = 29%
3) PPP growth YoY = 35%
4) PAT growth YoY = 59%
5) Stage 3 = 2.2% in Q4FY20 vs. 2.5% in Q3FY20
Result Analysis: Growth is going strong, both in terms of tonnage and value, which grew 4% and 21% YoY respectively. This despite the ongoing pandemic situation indicates strong pan-India level demand. Operating leverage was clearly visible with sharp improvement in profitability. Subsidiary performance was relatively muted on account of caution and now contribute 12% of consolidated AUM and 5% of profits.
Our view: A confluence of micro & macro factors puts Muthoot in sweet spot. Long term strengths include lower competition from other lending products, strong balance sheet, scale benefits and healthy return ratios. Firm gold prices provides short term tailwinds while attracting competition from banks and inability of branches to handle customers in the wake of Co-VID remain near term risks.
Valuation: Given the recent rally, Muthoot Finance now trades at 13x and 3.5x on FY20 earnings and book respectively. While these valuations look very reasonable on an absolute basis, other NBFCs trade at lower valuations. Maintain BUY.
Antique
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