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Operationally weak with a QoQ decline of ~150bp in NIM

For MUTH, 4QFY22 was characterized by: a) Gold AUM growth of 6% QoQ, despite auctions of ~INR21b; b) a decline of ~160bp QoQ in spreads to 11.4%, driven by competition in the high-ticket sized Gold loans; c) GS3% still elevated at ~3%, despite declining by ~80bp QoQ; and d) PPOP declined by 17% QoQ, but PAT fell 7%, led by provision write-backs of INR0.7b. We estimate standalone AUM growth of 8-9%/13-14% in FY23/FY24, with spreads declining to ~10%. We believe FY23 will be a difficult year for MUTH, with a clear trade-off between growth and margin. The stock trades at 1.9x FY24E BVPS, reflecting concerns around the muted Gold loan growth and a corresponding decline in profitability. We maintain our Buy rating with a TP of INR1,325 per share (based on 2.2x FY24E P/BV).

Gold disbursements facing headwinds from aggressive competition

* Gold loan/consolidated AUM grew 11% each YoY to INR575b/INR645b. Gold tonnage grew 5% QoQ and 9% YoY to 187t.

* Average monthly disbursement stood at INR112b in 4QFY22 (v/s INR104b/ INR77b in 3QFY22/4QFY21), which suggests that the high-ticket sized Gold loans are facing aggressive competition from MGFL and Banks.

* The number of loan accounts fell ~2% QoQ to 8.37m, while the number of active customers remained flat QoQ at 5.32m.

* LTV declined by ~400bp for the second consecutive quarter to 65%

GS3 declined sequentially, while Gold auctions still remain elevated

* GS3% fell ~80bp QoQ to 3%. The review of PD/LGD assumptions and a sequential decline in NPAs has contributed to the provision write-backs.

* Gold auctions stood at INR21b in 4Q (v/s INR28b/INR2.7b in 3Q/2Q FY22).

Highlights from the management commentary

* The management guided at a Gold loan growth of 12-15% and minimum spreads of ~10% in FY23.

* It does not see the RBI rate hike dampening overall demand. MUTH expects the cost of borrowings to rise gradually.

Valuation and view

* The Gold loan demand landscape is not very buoyant. As such, the incremental growth for incumbents will accrue at the cost of compression in spreads/margin, even as players will need to undercut each other on offered interest rates.

* We expect MUTH to deliver a standalone AUM growth of ~8%/13% in FY23/FY24. RoA/RoE is likely to decline to (5%/18%) over the next two years.

* We cut our FY23/FY24 EPS estimate by 18%/22% to factor in lower loan growth and a meaningful moderation in spreads. Current valuations of 1.9x FY24 P/BV reflect concerns on tepid Gold loan growth and a consequent impact on margin and profitability. We reiterate our Buy rating, with a TP of INR1,325/share (based on 2.2x FY24E BVPS).

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