IGI Logo

Growth and Margin trade-off becomes evident

Our view

While Muthoot’s gold AUM growth (6% qoq/11% yoy) was better than our expectations, the NII and PPOP missed estimates due to a much sharper compression of portfolio yield and higher opex. As was expected, auctions were high at Rs21bn (Rs28bn in Q3), and thus gold AUM growth was near 10% qoq after adding back the auctioned loans. The growth in large measure, over the past couple of quarters, was driven by the teaser rate scheme (targeting high value loans) which was run till March, and this is manifested in significant increase in average loan ticket of the overall portfolio (12.5% growth in past 3Q) and for old/fresh customers onboarded (45-65% growth in past 3Q). Loans above Rs1 lac/Rs 3lac were 58%/22% of AUM respectively.

The traction from teaser rate impacted portfolio yield (fell 1.9% qoq to 18.7%), which we understand was also impacted by meaningful interest settlements in pre-NPL buckets. Higher opex to some extent was driven by significantly higher business activity during the quarter. There was substantial reduction in reported Stage-2 and Stage-3 assets; however, the combined pool increased by 5% qoq adjusted for the auctions. The sustained delinquency flow comes as a surprise, given that gold prices have been stable and economic activity has recovered. In Q4 FY22, there was a net write-back of provisions on reduction in Stage-2 and Stage-3 loans and on annual review of the LGD in ECL model

The management is optimistic about delivering 12-15% Gold AUM growth in FY23 notwithstanding the withdrawal of teaser scheme (was instrumental in driving growth), competition remaining intense and likely continuance of material auctions in the near term (still elevated Stage 2 & 3 buckets). Company expects portfolio spread to be around 10% (11% in Q4 and 12%+ earlier) considering portfolio yield dynamics (impact of teaser scheme to linger), some tightening of funding cost and increased rate sensitivity in the market. It plans to add branches to support growth, but authorization from RBI is pending.

Our EPS/ABV estimates undergo 10-15%/3-6% cuts on lowering of growth and spread assumptions. Given sticky competition/rate related challenges, a scenario of 8-10% growth (not adjusted for auctions) and 10-10.5% spread is more probable for coming years in our view. We now expect sustainable RoA/RoE delivery of around 5.5%/20%. Stock trades at 1.8x FY24 P/ABV and seems to have priced bulk of the abovementioned concerns. Retain BUY with 12m PT of Rs1500.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

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