MOSL: MUTHOOT FINANCE (Buy)-Strong quarter-operating leverage benefits playing out
​Muthoot Finance: Strong quarter; operating leverage benefits playing out
(MUTH IN, Mkt Cap USD2.8b, CMP INR458, TP INR550, 20% Upside, Buy)
- Muthoot Finance’s (MUTH) 1QFY18 PAT grew 30% YoY (and 9% QoQ) to INR3.51b (in-line). Though there was a 5% revenue miss, it was offset by lower-than-expected provisioning.
- AUM growth remained anemic at 8% YoY (2% QoQ) to INR278b. The management has guided ~10% AUM growth in gold loans for the year, with potential upside, given the improvement in overall environment. However, the management targets 10% share of AUM from the non-gold loan book by end-FY18 and 15% share by FY19.
- Calculated margin expanded 80bp YoY to 12.6%, driven by declining cost of funds (-170bp YoY to 9.9% in 1QFY18). In fact, 140bp decline in CoF has accrued in just the past two quarters. The share of NCDs increased from 31% in 4QFY17 to 36% in 1QFY18.
- Better branch productivity and lower employee count resulted in a 50bp YoY decline in expense ratio to 4.4%. Average gold loan per branch has been trending upward since FY15 – now at INR65m (v/s INR60m in 1QFY17), close to the peak achieved in FY12.
- Asset quality remained stable, with GNPL ratio increasing marginally by 9bp YoY and 19bp QoQ to 2.25%. Provisions made in 1QFY18 were lower than expected at INR66m in comparison to INR176m in 1QFY17.
Muthoot Finance Limited is a gold financing company. The Company is a non-banking financial company (NBFC), which is engaged in providing loan (financing) against collateral of gold jewelry. The Company operates through two segments: Financing and Power Generation. The Company provides personal and business loans (secured by gold jewelry) primarily to individuals having no access to formal credit for a reasonable tenure to meet their short-term working capital requirements. The Company offers gold loans, foreign inward money transfer services, foreign exchange services, insurance broking, home loans, personal loans, collection services, microfinance, wind mill power generation, white label automated teller machine, instant money transfer services and domestic money transfer services. The Company has a network of approximately 4,294 branches all over India. In Sri Lanka, the Company offers corporate loans, mortgage loans, factoring, business loan and short term loans, among others.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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