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Growth and Yield were stronger

Stronger-than-expected performance

Muthoot’ consolidated NII/PPOP/PAT were 8.5%/10.5%/4.2% ahead of our estimates driven by 1) solid growth in consolidated AUM (7.6% qoq/24.6% yoy v/s expectation of 4.7% qoq/21.2% yoy) with growth in Gold Loans (GL) being ahead of expectations too (5.3% qoq v/s 3.8% qoq), 2) significant portfolio yield improvement of 50 bps qoq in GL business on the back of AUM mix changes and focused price actions, and 3) adept management of funding cost (via BS liquidity optimization) allowing for material expansion in GL portfolio spread (stood at 9.8% v/s 9.2% in Q3). Growth in non-GL businesses (18% of AUM) continue to be significant with 14% qoq growth each in Belstar MFI and Muthoot Homefin. Opex growth was high in the quarter reflecting strong business activity (emp. cost higher 10% qoq in GL entity) and emphasis on marketing & outreach. Credit cost run-rate at the consolidated level increased to 1% annualized, essentially driven by stronger growth and increase of Stage-2 assets in GL business and continuance of elevated credit cost in Belstar MFI. Notwithstanding this, Muthoot delivered RoA/RoE of 5.4%/21% on consolidated basis in Q4 FY24

Gold Loans growth metric was healthy; commentary is upbeat

In the mainstay GL segment, the AUM grew by 5.3% qoq/17.8% yoy underpinned by 2.2% qoq/6.6% yoy growth in active customer base, 2.2% qoq/4.4% yoy growth in tonnage and 3% qoq/13% yoy growth in loan/gram (largely reflects gold price increase). Notably, auctions were lower at Rs1.6bn in Q4 FY24 versus Rs3.8bn in Q3. While the trend in new customer acquisition remains encouraging (grew 11.7% yoy), the traction in old customer reactivation improved (grew 9% yoy versus 5-7% growth in preceding three quarters). GL customer/ticket mix shifted slightly higher with >Rs.3 lakh loans at 29% of portfolio (27% as of Q3), Rs.1-3 lakh loans at 37%, and <Rs.1 lakh loans at 34%. The portfolio yield improved to 18.3% from 17.8% in the preceding quarter. There was a three-fold increase in Stage-2 assets on sequentially basis (rose to 1.8% of AUM) while there was a slight reduction in Stage-3 loans (from 3.6% to 3.3%). In the earnings call, the management alluded to having witnessed sustained growth in the current quarter notwithstanding some frictional impact of the restriction on cash disbursement

Earnings undergo mild upgrades; retain BUY with enhanced 12m PT of Rs2050

On the back of substantial momentum in non-GL AUM growth and resilience in GL yield, we upgrade FY25/26 earnings estimates by 2-3%. We expect 15-16% growth in GL portfolio in FY25 even after subsuming some loss of the cash loan customers to informal segment. Prevailing gold prices provide significant cushion to our growth estimate. On consolidated basis, we see 14-15% AUM CAGR over FY24-26 and steady RoE delivery of 20%+. The stock trades at 10x PE and 1.9x PABV on FY26 estimates. We expect further re-rating of the stock on 1) sustained traction in GL growth (tailwinds from gold price and stabilization of competition), 2) maintenance of GL Yield/Spread, and 3) likely moderation in Belstar’s credit cost and improvement in its profitability.

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