IGI Logo

We attended MGFL’s analyst meet hosted by its senior management team, including MD and CEO Mr. VP Nandakumar and Executive Director Dr. Sumitha Jayasankar.

Key takeaways from the meet:

* The management said that it is making rapid progress in transforming MGFL into a diversified NBFC, with gold loans contributing over 50% of consolidated AUM. It has guided for a 20% CAGR in consolidated AUM and a consolidated RoE of 20% in the medium term.

* The company expects to return to gold AUM growth from 4QFY23. We estimate MGFL’s gold AUM to grow by ~3.5% QoQ in 4QFY23, driven by improving demand from small-ticket size borrowers.

* MGFL’s subsidiary, Asirvad MicroFinance, has witnessed a strong traction in loan disbursements. AUM of its MFI business has crossed ~INR100b, implying strong ~25% QoQ growth.

* For micro financiers, regulatory tailwinds include: 1) the spread deregulation allowing for risk-based pricing (in the range of 24%), and 2) the recent Supreme Court order in Andhra Pradesh quashing the jurisdiction of state governments to govern the RBI-regulated MFIs.

* Other non-gold segments, such as MSME/personal loans, CV loans and housing finance businesses, have witnessed strong growth on a low base. We expect the non-gold businesses (including MFI) to contribute ~45% to the AUM mix by Mar’23 and ~50% by Mar’24.

* Mr. Nandakumar’s current tenure ends on 31st Mar’24. The company shared that Mr. Nandakumar will not retire at the end of his current tenure and could seek an extension from the RBI. Meanwhile, Mr. Nandakumar’s daughter, Dr. Sumitha Jayasankar (appointed as executive director), will have sufficient time to prepare for succession.

* In light of strong growth in the non-gold businesses (particularly MFI), we have increased our FY24 estimates by ~5%. We now estimate a CAGR of 7% in gold loan AUM and 18% in consolidated AUM over FY23-FY25. This translates into a consol. PAT CAGR of 18% over the same period and RoA/RoE of 4.0%/18% in FY24 and FY25.

* We believe MGFL should tread carefully in the non-gold segments as it is yet to exhibit any clear ‘right to win’ in these segments. Good execution over the next few quarters will help MGFL build confidence in its ability to scale up non-gold products without associated risks on asset quality.

* Muted gold loan growth expectations are already reflected in the valuations at 0.9x FY24E P/BV. Reiterate our BUY rating with a TP of INR150 (based on 1.0x FY25E consolidated BVPS).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer