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Gold loan growth accelerates; yield expansion boosts NIM

Guidance of ~15% gold loan growth in FY25

* MUTH’s 4QFY24 performance was characterized by: 1) gold loan growth of ~18% YoY to ~INR729b; 2) NIM expansion of ~75bp QoQ to 11.9%; and 3) the rise in gold tonnage by ~2% QoQ to 188 tons.

* 4Q PAT grew 17% YoY and 3% QoQ to ~INR10.6b (in line), while FY24 PAT grew 17% YoY to INR40.5b. Net total income grew 14% YoY to ~INR22b (8% beat), and PPOP grew 17% YoY to ~INR15.1b (9% beat).

* Gold loan growth was supported by gold tonnage growth, along with an increase in the customer base by ~2% QoQ to ~5.7m. Higher gold prices during the quarter resulted in LTV declining ~2pp QoQ to ~63%.

* We model a standalone AUM CAGR of ~14% over FY24-FY26E. This, we believe, will result in a PAT CAGR of ~17% over this period. We model RoA/ RoE of ~5.3%/18% in FY26. Like last year, we expect higher gold prices to support gold loan growth for the sector as well as for MUTH, given that the company can further improve the LTV by leveraging top-ups on gold loans.

* We increase our FY25/FY26 EPS estimates by 5%/4% to factor in higher gold loan growth and higher other income. MUTH’s valuations have rerated in the last three months, aided by 1) higher gold prices resulting in better visibility on gold loan growth, and 2) expectations that the RBI’s gold loan ban on (once) the second largest gold loan NBFC would potentially result in lower competitive intensity and better gold loan growth for other gold NBFC peers.

* MUTH now trades at 2.1x FY26E P/BV, and although we expect gold loan growth to remain buoyant in the near term, we believe the current valuations largely factor in the positives factors. We maintain our Neutral rating with a revised TP of INR1,620 (based on 2.0x FY26E P/BV).

Strong AUM growth in Belstar; asset quality largely stable

* MUTH’s microfinance subsidiary, Belstar, posted ~62% YoY AUM growth to ~INR100b. Reported PAT in 4Q stood at ~INR1b, up ~5% QoQ.

* Asset quality was broadly stable with GS3 declining ~5bp QoQ to ~1.8%.

* Belstar added ~246 branches in FY24, and CRAR stood at ~21%.

Highlights from the management commentary

* The management continued to guide for ~15% YoY growth in gold loans and branch additions of 150-200 in FY25.

* The company shared that it has not seen any significant impact of the capping on cash disbursements in gold loans. Customers have taken it in stride and MUTH has seen healthy gold loan growth despite the capping on cash disbursements.

* Incremental CoB stood at ~8.8%-9.0%. In the subsequent quarters, MUTH expects weighted average CoB to rise to ~9%.

Valuation and view

* MUTH reported a healthy gold loan growth, aided by gold tonnage growth and stronger customer additions. We expect gold loan growth to remain buoyant in the near term, aided by higher gold prices and levers on LTV (~63% as of Mar’24). Lower competitive intensity due to the ban on gold lending on IIFL Finance will benefit other gold loan players, including MUTH.

* If and when the gold loan ban on IIFL Finance is revoked, we expect higher competitive intensity to again get restored in the gold loan ecosystem. Maintain our Neutral rating with a revised TP of INR1,620 (based on 2.0x FY26E BVPS).

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