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MUTHOOT FINANCE

Muthoot Finance

Current Market Price-: 1157 Rs

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This is an Indian Financial corporation with a history of more than 130 years and the largest gold loan NBFC in the country with its headquarters in Kerala. In addition to financing gold transactions, the company offers foreign exchange services, money transfers, wealth management services, travel and tourism services, and sells gold coins. It operates over 4,400 branches throughout the country. Outside India, company is established in the UK, the US, and the United Arab Emirates.

Key Events-:

  • 2001 Received the RBI licence to function as an NBFC 
  • 2005 Retail loan and debenture portfolio crossed Rs. 5 billions.
  • 2007 Net owned funds crossed Rs. 1 billion.
    • Categorised as an NBFC-ND-SI according to RBI norms 
    • Branch network crossed 500 
  • 2008 Fitch affirmed the F1 short-term debt rating with an enhanced amount of Rs800 millions.
    • Converted into a public limited company 
  • 2010 Net owned funds crossed Rs. 5 billions. 
    • Gross annual income crossed Rs. 10 billions.
    • Bank credit limits crossed Rs. 17 billions.
    • Branch network crossed 1,600.
    • CRISIL assigned P1+ rating for short-term debt of Rs. 4 billions, and ICRA assigned A1+ for short-term debt of Rs. 2 billions 
  • 2011 Received CRISIL assigned long-term rating of AA-/Stable for Rs. 1 billion
    subordinated debt issue and for Rs. 4 billions Non-Convertible Debenture issue, respectively .
    • ICRA assigned long-term rating of AA-/Stable for Rs. 1 billion subordinated debt issue and for Rs 2 billions Non-Convertible Debenture issue, respectively.
    • PE investments of Rs. 2,556.85 millions by Matrix Partners, LLC, The Wellcome Trust, Kotak PE, Kotak Investments and Baring India PE
  • 2012 Successful IPO of Rs. 9,012.50 millions in April 201 
  • 2015 Acquired 51% of capital of Asia Asset Finance Plc, making it a subsidiary.
  • 2016 Acquired 79% of the equity capital of Muthoot Homefin (India) Limited .
    • Acquired Muthoot Insurance Brokers Private Limited as a wholly-owned subsidiary .
    • Acquired 46.83% of the capital of Belstar Investment and Finance Private Limited .
    • CRISIL and ICRA upgraded long-term debt rating from AA-/Stable to AA/Stable 
  • 2017 Increased stake in Belstar Investment and Finance Private Limited to 64.60%, thus making it a subsidiary . 
    • Increased stake in Muthoot Homefin (India) Limited to 88.27% .
    • Enhanced stake in Asia Asset Finance Plc to 60%
  • 2018
    • Increased stake in Belstar Investment and Finance Private Limited to 66.61%. 
    • Enhanced stake in Muthoot Homefin (India) Limited to 100%, making it a wholly-owned subsidiary.
  • 2019
    • Increased stake in Belstar Investment and Finance Private Limited to 70.01% and Asia Asset Finance Plc to 69.17%.
    • Acquired Muthoot Money Limited as a wholly- owned subsidiary .
    • Incorporated Muthoot Asset Management Private Limited and Muthoot Trustee Private Limited as wholly-owned subsidiaries.

The Muthoot Group began its journey in 1887 in the remote village of Kozhencherry in Kerala. It was founded as a modest trading business in a region that was geographically disadvantaged and lacking in mobility, land, resources, industry or favourable market conditions. The story of Muthoot Finance goes back eight decades, when Shri M. George Muthoot founded the gold loan business in 1939. Today, company has evolved into one of India’s most trusted financial services brands and the country’s largest gold financing company (by loan portfolio). 

Over the past 133 years, the Group has grown into a flourishing conglomerate, reaching out into India’s small and large towns as well as its major cities through as many as 20 business divisions and 5,300+ branches. 

Muthoot Finance Limited (Muthoot Finance) is the flagship business of the Muthoot Group and India’s largest gold financing company. It is registered as a ‘Systemically Important Non-Deposit-Taking Non-Banking Financial Company (NBFC-ND-SI)’ with the Reserve Bank of India (RBI). Muthoot Finance serves millions of customers across the country. It serve over 200,000 customers each day.

BUSINESS PROFILE

Muthoot Finance’s gold loan portfolio is the largest in India as well as around the globe. Over 200,000 people avail trusted services on a daily basis. Company endeavours to understand the specific requirements of individuals to be able to make funds available to them with speed. Company also provides free insured locker for the gold pledged; and the lending rates and other loan charges are intimated to each customer upfront to maintain transparency and ensure their complete understanding. 

A gold loan or a loan against gold is a secured loan which customers can avail from Muthoot Finance in lieu of gold ornaments like gold jewellery. It is the easiest way to fulfil financial needs and proves to be a sensible alternative to availing loans from banking channels.

Additionally company also offer services like online gold loan, loan withdrawals, loan renewals, interest payments and loan repayments via mobile app, iMuthoot, as well as the Muthoot online platform. 

Belstar Microfinance Limited was incorporated in January 1988 in Bengaluru and registered with the RBI in March 2001 as an NBFC. The company was reclassified as an ‘NBFC-MFI’ by the RBI effective December 11, 2013, and provides scalable microfinance services to entrepreneurs following the Self-Help Group (SHG) model. 

During the year, the company commenced operations in the new states of Bihar, Uttar Pradesh and Uttarakhand and further expanded its outreach in existing states. Continued implementation and stabilisation of the use of tablets for the field staff across the company, helped in improving the data quality and team productivity while reducing the turnaround time for on-boarding new clients. 

Muthoot Homefin (India) Limited is a housing finance company registered with the National Housing Bank (NHB). Incorporated in 2011, it became a wholly-owned subsidiary of Muthoot Finance in August 2017. 

The company focuses on extending affordable housing finance and targets customers in Economically Weaker Sections (EWS) and Lower Income Groups (LIG) in Tier II and Tier III locations. It operates on a hub-and-spoke model, with a presence in 16 states and centralised processing at the Corporate Office in Mumbai. 

Going forward, the company will expand the cross-sell proportion from Muthoot Finance branches. FY21 will be a year of consolidation and emphasis will be on cementing presence in the current locations. 

Asia Asset Finance Plc, Colombo, Sri Lanka became a foreign subsidiary of Muthoot Finance on December 31, 2014. It is a fully licensed, deposit-taking institution registered with the Central Bank of Sri Lanka and listed in the Colombo Stock Exchange; and has been in the lending business since 1970. Formerly known as Finance and Land Sales, it has evolved to serve the growing needs of the people of Sri Lanka. 

Through a widespread branch network, the company has operations in various parts of Sri Lanka, providing the best services and easy access to clients. By 2025, Asia Asset Finance Plc aims to become the leading gold loan company in Sri Lanka.

Muthoot Insurance Brokers Private Limited became a wholly-owned subsidiary of Muthoot Finance in September 2016. It is an unlisted private limited company holding a licence to act as Direct Broker from the Insurance Regulatory and Development Authority since 2013. It is actively distributing both life and non-life insurance products of various insurance companies.

Muthoot Money Limited became a wholly-owned subsidiary of Muthoot Finance in October 2018. The company is an RBI registered NBFC engaged mainly in the financing of used and new commercial vehicles, passenger vehicles, construction equipment, and other asset finance solutions. Further, CRISIL assigned long- term debt rating of CRISIL AA-/Positive for bank limits.

Financial Performance

Overall Performance

Against this adverse backdrop in FY20, Muthoot Finance increased its consolidated total income by 28% y-o-y to Rs 97,072 millions. Consolidated profit after tax increased 51% y-o-y to Rs 31,690 millions. Consolidated loan assets under management increased 22% y-o-y to C468,705 millions. Gold loan assets under management also registered a 21% y-o-y increase to C407,724 millions. 

Housing finance subsidiary, Muthoot Homefin (India) Limited, saw income rise from Rs 2,257 millions in FY19 to Rs 2,876 millions, while profits moderated to Rs 318 millions. Loan assets grew from Rs 19,075 millions in FY19 to Rs 19,769 millions. The share of stage 3 assets in total loan assets was recorded at 1.71%. 

Microfinance arm, Belstar Microfinance Limited, grew reasonably well, with loan assets increasing from Rs 18,419 millions in FY19 to Rs 26,310 millions. Profits increased from Rs 729 millions in FY19 to Rs 990 millions. 

Muthoot Insurance Brokers Private Limited registered a premium collection of Rs 3,232 millions in FY20, up from Rs 2,676 millions in FY19. Total policies sold increased to 2.8 millions from 2.2 millions in FY19. Profits stood at Rs 104 millions. 

Sri Lankan subsidiary, Asset Asia Finance Plc progressed well in FY20 with loan assets growing at 8% y-o-y to Rs 5,380 millions, of which gold loan accounted for ~31%. We plan to bring it at par with Muthoot Finance – a 90%-plus portfolio of gold loan in the coming years. 

Muthoot Money Limited, which is our new subsidiary in the vehicle finance segment in the states of Telangana and Andhra Pradesh, started extending loans for commercial vehicles and equipment, in addition to two-wheelers and passenger cars. Total loan portfolio stood at Rs 5,090 millions, up 64% y-o-y, while profits increased to Rs 27 millions from just Rs 3 millions in FY19. 

A major highlight from the year was the successful raising of $1 billion from international bond markets in two tranches. The overwhelming response to the fund raise is a resounding vote of confidence by foreign investors in our strong fundamentals and growth potential. The diversified borrowing mix, coupled with the outstanding credit ratings received from all major ratings agencies, positions us well to achieve 15% growth in the current fiscal. 

Robust earnings performance in Q3 and 9MFY2021

Muthoot Finance has recorded 18% growth in the net profit on consolidated basis to Rs 1004.84 crore for the quarter ended December 2020 (Q3FY2021) over a corresponding quarter of last year. The company has maintained healthy core operating performance. The loan growth of the company has remained strong at 31% in Q3FY2021. The asset quality of the company has remained stable in Q3FY2021.

Income from operations improved 16% to Rs 3016.43 crore in the quarter ended December 2020. Interest expenses galloped 29% to Rs 1048.58 crore, while other expenses (including staff cost of Rs 288.85 crore and other expenses of Rs 210.12 crore) declined 4% to Rs 498.97 crore. Ensuing Gross profit improved 16% to Rs 1468.88 crore in Q3FY2021 over Q3FY2020.

Depreciation rose to Rs 17.45 crore in Q3FY2021 from Rs 16.21 crore in Q3FY2020, while provision and write offs jumped to Rs 100.87 crore in Q3FY2021 from Rs 97.6 crore in Q3FY2020. PBT increased 17% to Rs 1350.56 crore.

Effective tax rate rose to 25.5% in Q3FY2021 from 25.3% in Q3FY2020. The net profit of the company increased 18% to Rs 1004.84 crore in the quarter ended December 2020.

For the nine months ended December 2020 (9MFY2021), Muthoot Finance reported 19% rise in Income from operations at Rs 8426.29 crore. Other income rose 5% to Rs 21.15 crore in 9MFY2021. The total income improved 19% to Rs 8447.44 crore. Interest expense increased 32% to Rs 3048.81 crore, while other expenses moved up 1% to Rs 1433.17 crore. Ensuing Gross profit rose 19% to Rs 3965.46 crore. Depreciation increased 12% to Rs 47.07 crore, while provision and write offs moved up 3% to Rs 172.06 crore. PBT jumped 20% to Rs 3746.33 crore. Effective tax rate stood at 25.4% compared to 25.5%. The minority interest dipped 56% to Rs 10.68 crore. The final bottomline of the company gained 21% to Rs 2784.43 crore in 9MFY2021.

For the 3QFY21

  • NII grew by 12.7% YoY and 11.9% QoQ
  • Overall AUM grew by 31% YoY (+7.2% QoQ) led by 31.5% YoY growth in gold loans (+7.3% QoQ).
  • Operating profit growth was strong, up 20.1% YoY.
  • PAT grew by 21.6% YoY and 10.8% QoQ.

Asset Quality 

Collection efficiency (excluding arrears) in the non-gold book is as follows:

Housing Finance: 88%

Microfinance: 98%

Vehicle Finance: 83.8%.

Sectorial Outlook

Gold is rarely ever sold, but often pledged to obtain loans, particularly in rural areas, where bank penetration is limited and there is seasonal demand for ready cash that is met increasingly by the NBFCs, who have driven the trade from the clutches of moneylenders to more formal financial channels. More than two-thirds of India’s demand for gold loans is said to emanate from rural communities.

Specialised gold loan NBFCs like Muthoot Finance occupy a niche in the gold financing business through proactive marketing, sustained geographic expansion, higher branch productivity and strong customer relations.

The gold loan market in India is expected to grow to Rs 4,617 billions by FY22, at a five-year CAGR of 13.4%8. For the increasingly competitive organised gold loan sector, geographic expansion in under penetrated states remains a key factor in propelling business growth. At the same time, organised lenders are expected to leverage their existing branch infrastructure to maximise the branch-level AUM and customer outreach.

The management has given a growth guidance of ~15% in the gold loan business going forward. The management sees potential in Housing and Vehicle Finance and hence would not shy away from growing these businesses as and when they deem fit. In the Sri Lankan subsidiary (Asia Asset PLC), the company aims to increase gold loans’ share to 85-90% over the next two years from ~45% currently. 

Gold loan growth was uniformly spread geographically. FY21 AUM growth guidance stands at 25-26%. Going forward, growth would be ~15% p.a. and could be better in case of better conditions. Growth in non gold businesses will take some more time to pick up. 

Business updates -: Expect 25–26% AUM growth for the year.

Operating Expenses -: As per branch expansion plan, ~200 branches would be opened in FY22.

Key advantages of specialised NBFCs in the gold loan market

• Singular focus on gold loan products that helps hone capabilities across faster loan processing, accurate gold valuation, safekeeping and auctioning

• Relatively small ticket size, secure nature of business and wide variety of products, leading to minimal credit cost and stable growth

• Deeper penetration into semi-urban and rural areas, bringing more of the underserved into the formal banking fold

• Flexible repayment options that suit different borrower requirements

• Proactive marketing, branding and geographic expansion that help capture new-to-market customers

Conclusion-:

The gold loan market in India is expected to grow to Rs 4,617 billions by FY22, at a five-year CAGR of 13.4%.

As a trusted pan-India brand in the gold loan space, Muthoot Finance is revolutionising India’s gold banking sector and empowering people across the social pyramid. Inspired by a rich legacy that goes back several generations, its team of 25,000+ employees serving 200,000+ customers every day, through 4,500+ branches, the majority of which are in semi- urban and rural India is well poised to cater the growth as projected by the management.

As per the management it is expected that Business AUM may grow about 25-26% with overall growth of 15% per annum which makes it significantly attractive for long term where one can expect an upside of about 25%+ over the long run. However the current pandemic situation may hinder the growth guidance by the management but over the long period it is expected that it may very well compensate users for their patience and trust in the company.

Being country’s largest gold financing company (by loan portfolio) it trades at significant cheap valuations as compared to its peers which trade at Avg PE of 25-30 while Muthoot finance trades at PE of just 13 as a result there is also possibility of expansion in valuation multiples.

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