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Non-gold businesses appear promising if executed well

Guides for consolidated AUM CAGR of 20% and RoE of ~20%

? At its analyst/investor meet, MGFL’s senior management team showcased the company’s capabilities in its non-gold business including MFI, vehicle finance, home finance and MSME & allied products.

? Beyond its view/outlook on the gold business, MGFL presented a drill-down on each of its non-gold businesses, including 1) a peek into its sourcing, underwriting and collection processes, 2) how these businesses have successfully navigated Covid and have reverted to pre-Covid business indicators, and 3) readiness to now exhibit healthy AUM growth and profitability in non-gold businesses.

Key takeaways

? MGFL continued to guide for 8-10% YoY growth in gold loans. With the revival of economic activity for NBFC gold loan customers, it expects to revert to the a 10-12% gold loan growth trajectory after a few quarters.

? The company believes that maintaining gold loan yields of 21-22% is better than pursuing higher gold loan growth at lower yields. It can deliver a ~20% consolidated AUM CAGR and ~20% RoE without low-yielding gold loans.

? The JLG model in MFI is successful - collection to billing remained at ~100%. While there was some lag in collections in Asirvad, it has now come back to pre-Covid levels. Digital collections of ~14% in MFI is also encouraging.

? The management did not ascribe any credibility to media articles of Jio Finance looking to acquire a stake in MGFL or buying the promotor stake.

? MGFL has been pursuing a conscious strategy of diversification and de-risking the portfolio. It reiterated its target of achieving 50:50 AUM mix between gold and non-gold businesses in the near term. The company has decentralized underwriting and disbursement in its non-gold businesses and plans to leverage data analytics to arrive at informed credit decisions.

Gold Loans: Looking for a steady 8-10% growth at yields of 21-22%

? As of 1HFY24, Gold AUM stood at INR208b with a customer base of 2.5m.

? The company expects gold prices to be supported by geopolitical events and low interest rates in the US. Gold loan demand will become price-agnostic and MGFL can provide hassle-free gold loans. Elevated gold prices will lend another layer of comfort to the industry.

? Buoyancy in economic activity will spur gold loan demand. With the RBI clamping down on small-ticket unsecured loans, customers will turn to gold loans for their working capital and emergency needs. CY24 will be a betterthan-expected year for the gold loan industry.

Microfinance: IPO-bound; asset quality and collections holding up well

? Despite rural distress, MFIs have not shown any deterioration in asset quality. The removal of spread caps is a win-win for lenders and customers.

? Among its peers, Asirvad was the first and fastest to get an AA- rating from credit rating agencies.

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