This financial action has a call to buy from IDBI Capital with a target price of Rs 2000

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Muthoot Finance T2FY22 results

According to IDBI Capital, Muthoot Finance (MUTH) reported weaker growth in gold assets under management at 18% year-on-year versus 29% year-on-year (T1FY22), overall versus. Assets under management increased 17% year-on-year; management maintained the forecast of 15% growth for FY22. Profitability growth was lower at 11% due to an increase in provisions. NII grew 14.5% year-on-year, due to lower margins; while PPoP grew 17% year-on-year, driven by lower operating expenses.

The brokerage said that “MUTH’s provisions increased 595% year-on-year (up 121% quarter-on-quarter) due to deteriorating asset quality. balance sheet.”

Highlights and rationale for the investment for Muthoot Finance according to IDBI Capital

Highlights and rationale for the investment for Muthoot Finance according to IDBI Capital

The growth of gold stocks is slowing down: Growth in gold loan assets under management slows to 18% yoy (up 5% qoq) from 29% yoy (Q1FY22) due to a high base effect (32% qoq). year-on-year T2FY21). Gold holdings increased 9% yoy (up 4% qoq) to 178 tons, while lending per gram of gold grew 7% yoy (up 1% quarter on quarter) to reach Rs 3,098. Management continues to guide gold lending growth at 15% year-on-year for FY22 on a prudent basis.

The quality of assets is deteriorating: Phase III loans increased in the quarter to 1.9% versus 1.2% QoQ, which is not a cause for concern as they are backed by higher collateral. The company carries an additional provision of 2.95 billion rupees and an aggregate sum of 9.45 billion rupees (stand-alone activity).

Margins improved sequentially: NIMs improved 53 basis points QoQ to 13.46% due to higher yields on loans and lower cost of funds in the quarter. Likewise, spreads also increased to 12.64% from 12.21% QoQ.

Outlook: Given the competitive environment, management maintained its 15% year-on-year growth forecast for FY22. The best part about the Gold Funding Portfolio though is that the NPA can slightly higher; the lender can auction and collect much better compared to other asset classes.

IDBI Capital's perspective on Muthoot Finance

IDBI Capital’s perspective on Muthoot Finance

Muthoot Finance plans to maintain its NIMs and spreads (current NIM at 13.46% and interest spread at 12.64%) and the outstanding gold loan currently stands at INR 546,821 million in September 2021. If the gold lending volume per branch increases, OPEX does increase proportionately (certain fixed expenses), additional staff may increase, the brokerage report says according to management.

IDBI Capital said, “We believe that MUTH, with approximately 90% of assets under management in the gold loan portfolio, has a lower risk of asset loss than other NBFCs. Rs.2,000 (formerly Rs.1,790), valuing it at 3x P / ABV FY24E. “

Disclaimer

Disclaimer

The above action is taken from the IDBI Capital brokerage report. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author and the brokerage are not responsible for any losses caused as a result of decisions based on the article.


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