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Gold loan book moderates; MFI performance healthy

* Consolidated PAT grew 18% YoY to INR4.7b (5% miss) in 4QFY21. While operating profit was largely in line, higher provisions (from the MFI segment) led to the PAT miss.

* Compared to our expectation of 3% QoQ decline, the gold loan book declined 6% QoQ. All the other segments delivered sequential loan book growth – the most prominent being the MFI segment with 11% growth.

Lower prices and tonnage lead to a lower Gold loan book

* Gold prices in 4QFY21 were down 12% QoQ. Two other factors led to the decline in the loan book: a) auction of INR4b worth of Gold loans, and b) 4% decline in tonnage to 65MT. However, these were offset by an increase in LTV to 71% from 63%.

* The total number of customers was stable at 2.6m, while the average ticket size declined 4% sequentially to INR45k. The share of online Gold loans has come off a bit to 54% v/s 59% in 3QFY21.

* The GNPL ratio increased 60bp QoQ to 1.9%. However, we do not foresee any eventual credit losses from this book.

MFI segment – Growth picks up; collection efficiency north of 100%

* Over the past two quarters, the MFI book has grown 20% to INR59b. The management’s confidence in loan growth comes from its healthy collections – collection efficiency stood at 103-105% in each month of the quarter. Even excluding prepayments, collection efficiency was 99-100%.

* The 0dpd+ ratio in the MFI segment has declined to 16% in FY21 from a peak of 21% in 1HFY21. The GNPL ratio stands at 2.5%.

* In other key segments (Housing loans and Vehicle Finance), the loan book grew 5-7% QoQ. While the GNPL ratio in the HFC segment increased 100bp QoQ to 6%, it improved 330bp to 5% in the Vehicle Finance segment.

Spreads stable; maintaining healthy liquidity on the Balance Sheet

* Consolidated spreads (calculated) moderated 30bp QoQ to 14.5%, in line with its long-term average. Over the past year, consolidated cost of funds is down 70bp to 9.1%.

* The share of NCDs in the total borrowing mix continues to inch up (doubled to 36% from 18% YoY). The share of CPs stands at a modest 5%. Total liquidity on the Balance Sheet stood at 13% of borrowings.

Valuation and view

The slowdown in the Gold Finance segment is a one-time blip due to a sharp correction in gold prices. The short loan tenure (three months v/s the industry average of 6-12 months) is resulting in a quicker downward re-pricing. Over the medium term, we expect MGFL to deliver 10-15% steady-state gold loan growth. In the other segments, there is a clear turnaround in terms of growth and collections. While the cost of funds is elevated, we expect some moderation in FY22E. Our EPS estimates are largely unchanged. We maintain our Buy rating with a TP of INR205/share (1.6x FY23E BVPS).

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