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Gold loan growth flat QoQ; auctions to stay elevated in 4QFY22

For MUTH, 3QFY22 was characterized by: a) interest cost savings, which led to an in line PPOP/PAT performance; b) elevated Gold loan auctions of INR28b, which resulted in gold AUM remaining largely flat QoQ, c) stable spreads of 13%, despite an aggressive competitive landscape; d) GS3 increasing by ~200bp QoQ to 3.8%, suggesting that auctions will remain elevated in 4QFY22 as well to pare down GS3 to the management’s guided level of 2-3%. We estimate MUTH to deliver a gold loan growth of ~10% in FY22E. However, this incremental growth in 4Q will come at the cost of a minor compression in spreads/margin, given that the demand environment is not very favorable.

* PAT (in line) grew 4% each YoY and QoQ to INR10.3b. Despite a higher than estimated credit costs, lower interest expenses led to an in line performance.

* Both Gold loan/consolidated AUM were flat QoQ, but rose 9% each YoY at INR542b/INR609b. Gold tonnage was also flat QoQ, but up ~7% YoY at 178t. It delivered stable gold tonnage, despite a higher quantum of gold auctions.

* MUTH is still one of the best plays among non-Bank lenders. Despite loan growth remaining susceptible to the volatility in gold prices, we believe that through-cycle loan CAGR of 13-15% are sustainable.

* We expect it to deliver standalone AUM growth of ~10%/15% in FY22E/FY23E. RoA/RoE is likely to remain robust (6%/22%) over the medium term. We have cut our FY23E/FY24E EPS estimate by 3-4% to factor in a slight moderation in spreads. We reiterate our Buy rating with a TP of INR1,800/share (at 2.8x FY24E BVPS).

Gold disbursements improve sequentially; auctions/collections higher QoQ

* Average monthly disbursements, at INR104b in 3QFY22 (v/s INR102b/ INR85bn in 3QFY21/2QFY22), suggest robust gold disbursements, despite aggressive pricing from MGFL and Banks in the high-ticket size Gold loans.

* The number of loan accounts/active customers fell 3.4%/2% QoQ to 8.52m/5.32m.

* Gold tonnage and gold AUM remained flat QoQ. However, with a recovery in gold prices in 3QFY22 (particularly in Nov-Dec’21), LTV declined by ~400bp QoQ to 69%.

Deterioration in Stage 3, but Stage 2 improved sequentially

* GS3 rose ~200bp QoQ to 3.8%. However, the silver lining was that Stage 2 almost halved to 6% in 3Q (v/s 11.2% in 2QFY22). 30+dpd declined to ~10% from 13% in 2Q.

* Gold auctions stood at INR28b in 3Q as compared to INR2.7b/INR370m in 2Q/1QFY22. We expect gold auctions to stay elevated in 4QFY22, post which 30+dpd will decline significantly by Mar’22.

* As a percentage of average AUM, credit costs stood ~56bp at INR890m.

Highlights from the management commentary

* AUM growth should be slightly higher than 9% YoY as of Mar'22. It maintained its guidance of 15% AUM growth in FY23.

* The management aims to maintain spreads as it is confident of maintaining yields despite the competition.

Highlights from the management commentary

* AUM growth should be slightly higher than 9% YoY as of Mar'22. It maintained its guidance of 15% AUM growth in FY23.

* The management aims to maintain spreads as it is confident of maintaining yields despite the competition.

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