MOSL: MUTHOOT FINANCE – 2QFY19 (Neutral) - Growth picks up sharply-asset quality improves

Muthoot Finance – 2QFY19: Growth picks up sharply; asset quality improves

(MUTH IN, Mkt Cap USD2.7b, CMP INR472, TP INR500, 6% Upside, Neutral)

• Muthoot Finance (MUTH) reported a 9% YoY growth in PAT to INR4.8b (5% miss) in 2QFY19, driven by a sharp pick-up in loan growth and QoQ GNPL reduction.
• AUM grew 4% QoQ/17% YoY to INR323b – the strongest YoY growth in the past 25 quarters. The past two months witnessed a slowdown in disbursements; yet management expects 15% AUM growth for FY19.
• Margins shrank ~300bp YoY to 14.1%, driven by a similar decline in yields. However, the decline was due to a high base (one-off income in 2QFY18). MUTH has recently increased yields to offset the rise in borrowing cost.
• Opex increased 18% YoY, largely driven by a 35% YoY increase in non-employee expenses, largely due to advertising expenses.
• Asset quality improved on a sequential basis – stage 3 loans declined ~100bp QoQ to 1.9%. This was against a sequential increase of 230bp in 2QFY18. As a result, credit costs declined sharply to INR25m from INR1.2b in the year-ago period. ECL provision stood at 1.8%.
• Key subsidiary performance: Muthoot Homefin’s loan book doubled YoY to INR18b, while PAT doubled YoY to INR100m in the quarter; GNPL ratio stood at 78bp. Belstar’s loan book grew 73% YoY to INR14b, while PAT jumped from INR20m to INR170m.