MOSL: MUTHOOT FINANCE (Neutral)-PAT misses estimate as growth remains tepid-asset quality deteriorates
Muthoot Finance: PAT misses estimate as growth remains tepid; asset quality deteriorates
(MUTH IN, Mkt Cap USD2.5b, CMP INR414, TP INR470, 14% Upside, Neutral)
- Muthoot Finance's (MUTH) 4QFY18 PAT grew 40% YoY to INR4.5b (8% miss), driven by high opex and credit costs. AUM grew 3% QoQ/7% YoY to INR291b.
- NII declined 7% YoY, driven by 110bp YoY contraction in margins. Yields came in at 22% in the quarter. MUTH has grown its collections team as a strategy to focus more on repayments/renewals by customers rather than auctions.
- Cost of funds declined 10bp QoQ to 8.5% - we believe cost of funds has bottomed out now, and should stay put or even rise, going forward. Borrowings remained largely unchanged sequentially at INR213b. Sequentially, the share of term loans declined from 57% to 53%, while that of CPs increased from 7% to 13%.
- Increase in opex (+9% YoY) from run-rate levels (INR3-3.1b for previous seven quarters) was due to a) roping in a brand ambassador (Amitabh Bacchan), b) strengthening collections team and c) sponsoring an IPL team. With 9% YoY opex growth, the C/I ratio came in at 32% v/s 29% in 3QFY18.
- Asset quality deteriorated sharply - GNPLs were up 28% QoQ to INR15.9b. Note that GNPLs have gone up 4x from 4QFY17, as the company now prefers overdue collections/renewals by customers rather than auctions. The increase in GNPLs is in line with management guidance of an INR5b-6b rise post migration to 90dpd in 4QFY18.
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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