Muthoot Finance Posts Decent Q3FY13 Numbers, Expects Further Loan Growth

Muthoot Finance, India’s largest gold financing company, has announced its numbers for the Dec 2012 quarter. The total income of the company grew by 11% to Rs 1365 crore, while the Net Profit witnessed a marginal growth of 7% to Rs 270 crore on a YoY basis. Despite the fair performance, the stock moved higher almost 5% to close the day at Rs 226.90 per share.

The following table indicates some of the key parameters of the performance of Muthoot Finance.

Particulars (Rs/Cr)	Dec. 2012	Dec. 2011
Total Income	1365	1230
Profit After Tax	270	251
EPS	7.27	6.77
Gold Loan Outstanding (Rs/Cr)	25388	22695
Average Ticket Size (Rs)	41146	39944
Branch Network (No.)	3914	3480
Return on Average Retail Loans (%)	4.37	4.58
Capital Adequacy Ratio (%)	19.5	18.33

Muthoot Finance is a systematically non-deposit taking NBFC, majorly into gold loan financing. The company provides personal loans secured by gold jewellery, or gold loans, primarily to individuals for their short-term liquidity requirements. As on Dec 2012, the gold loan outstanding increased by 11.87% to Rs 25388 crore on a YoY basis, with the average ticket size increasing by 3% to Rs 41146. The Capital Adequacy Ratio (CAR) of the company stands at 19.5%, which is reasonable.

Commenting on the results, M G George, Chairman, Muthoot, stated, “Muthoot Finance has been able to register a growth of Rs 1969 crore in its assets under management, as against a de-growth of Rs 1337 crore in the first quarter of FY13 and a growth of Rs 405 crore in the second quarter of FY13, signifying the beneficial fall out of the strategic steps the company has taken to address the regulatory restrictions imposed on gold loan NBFCs. The result gives us the confidence to sustain growth in the coming quarters improving profitability metrics”.

At the time of this update, not much information was available as the investor presentation was still not out. However, the management had spoken to one of the leading business news channels, where it reported that the company expects loan growth of around 10% for FY13. Further, for the Dec quarter of 2012, the Net Interest margins are also expected to come down by 50 to 100 basis points in the range of 9.5%-10%.

Overall, we believe that the gold loan space is now under the regulator’s arm, and hence, the recent easing of the Loan-to-Value (LTV) ratio has already resulted in a spurt in these counters. On the valuations front, Muthoot Finance is currently available at a trailing Price-to-Earnings of 8.3x and a Price-to-Book value of 2.27x, which looks expensive. We would advise our readers to stay away from the counter. However, bond subscribers have no reason to worry as the company is in a comfortable position to make timely interest payments.