Muthoot Finance - A long Term Gem from NFBC Sector

Company Description

Muthoot Finance Limited is the flagship company of the Muthoot Group. This Kerala based group has a legacy of gold loan business for more than 125 years. The company has emerged as India’s largest gold financing company in terms of loan portfolio.
·    Below are few factors about the company which showcases its pan India presence.
·    Largest Gold financing company in terms of loan portfolio
·    26 States and Union Territories of India have our presence
·   4,300+ Strong branch network enabling us deeper penetration across India; over 70% of our branches are in under-served rural and semi-urban Indian market
·   80,000+ Customers are served every day; their satisfaction confirms repeat business
·   450,000+ Retail investor base across debenture and subordinated debt portfolio
·  131 Tonnes Gold jewellery kept as security as on 31st March, 2015.

Muthoot Finance is trying to cut down their tight dependency with gold loan business as currently 99 percent of its business comes from gold loan.  In the next 4-5 years, company aims to reduce its gold loan business ratio to 25-30, and diversify to other areas mentioned below
·      Company is awaiting SEBI approval for mutual fund business
·     Company has acquired a microfinance institution (Pancharatna Securities Ltd) with a stake of 14%. It is waiting for RBI approval to raise it to above 51%. Currently the microfinance business has an AUM (Asset Under Management) of more than 250 crores, which is expected to grow at a higher pace.
·     Company’s housing finance division is slowly building up.  Currently the AUM is just below Rs 50 crore. By the end of FY16, that can come to about Rs 300-400 crore and probably gradually go up there.
·      Company has taken strict measures to close their legacy gold loan accounts
·      Company acquired 51% equity capital of Asia Asset Finance PLC, (AAF), a company listed on the Colombo Stock Exchange, thus making it a subsidiary. Plan is to operationalise the gold loan business in Sri Lanka through AAF.
·    Company provides money transfer services and collection agency services.
·    White label ATMs.  Company intend to install 9000 ATMs in next 3 years and are now working towards obtaining the certification of Authorization from RBI
 
Company Snapshot
Stock
Muthoot Finance
Recom
Buy
Sector
NBFC
CMP
Rs. 282
Target Price
Rs. 360 by March 2017, Rs.850 by March 2020
52 W-H/L
288/151
BSE/NSE Code
533398/MUTHOOTFIN
Face Value
10
Market Cap
11,245.88  CR
EPS
20.34
Book Value
Rs. 147
P/E
13.89
Price/Book
1.91
Dividend
2.13%

Share Holding Pattern
Promoters
74.64%
FII
14%
Mutual Funds
6.86%
Rest including Public
4.5%

Historic Returns
1 Month
31.94%
1 Year
50.92%
2 Year
49.96%

Moving Averages
30 Days
245.95
50 Days
227.10
200 Days
190.59

Industry Outlook
Now what financial markets had feared has become true. Brexit has happened and coming days will be challenging, both from political and economic fronts across the world. This would keep the gold price at a higher level. Also, good monsoon and friendly NBFC related government policies in India would be an added advantage for NBFC companies.  

NBFCs in India have so far scripted a great success story. Their contribution to the economy has grown in leaps and bounds from 8.4% in 2006 to above 14% in March 2015. In terms of financial  assets,  NBFCs have recorded a healthy growth—a compound annual growth rate (CAGR) of 19% over the past few years—comprising 13% of the total credit and expected to reach nearly 18% by 2018 –19.

Figure 1: Expected CAGR of 20% -Estimated by ASSOCHAM

Key Financials - Quarterly (Fig in Crs)
Quarter
Jun 2015
Sep 2015
Dec 2015
Mar 2016
Sales
1,140.06
1,136.13
1,138.27
1,446.95
Expenses
278.13
292.05
275.19
397.68
OP Profit
861.93
844.08
863.08
1,049.27
OPM
75.60%
74.29%
75.82%
72.52%
Net Profit
183.16
174.50
186.67
265.22

Takeaway: Both top line and bottom-line has made excellent growth in the recent quarter due to higher gold price. The same is reflected in OPM and Net Profit as well.


Key Financials - Yearly (Fig in Crs)
Year
Mar 2014
Mar 2015
TTM
Sales
4,947.35
4,324.52
4861.41
Expenses
1,076.76
1,104.68
1243.05
OP Profit
3,870.59
3,219.84
3618.36
OPM
78.24%
74.46%
74.56%
Net Profit
780.07
670.52
809.55

Takeaway: After a subdued 2015, this year is expected to be a turnaround year for Muthoot Finance as the gold price is stabilized and due to its diversification.

Key Developments in Last 1 Year
Muthoot Finance Ltd has completed acquisition of Muthoot Insurance Brokers Pvt Ltd (MIBPL) by transfer of equity shares from its existing shareholders. MIBPL is an unlisted private limited company holding a licence from Irdai since 2013, to act as a direct broker. 

It actively distributes both life and non-life products of various insurance companies. During FY15, it insured more than 2,92,000 lives with a premium collection of Rs 35 crore under traditional, term and health products. This ROE to 4,59,000 lives with a premium collection of Rs 49 crore in FY16.

Technical Indicators
 

·         Stock is in uptrend from 2013
·         Strong support @240 levels
·         Buy 50% of intended quantity @ 270-290 levels.
·         In case of market correction, accumulate more @ 240 and 220 levels
·      Currently we are seeing a resistance breakout. It can move to 325-350 zone by results. 

Note: This stock study was published to our IHG group on 26th June

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4 comments:

  1. First thing first. Comprehensive analysis. thanks. However given recent IT raid on Muhtoot offices. how would ypu like to put this news in perspective of above analysis. Your two cents please.

    ReplyDelete
  2. You have been doing such a wonderful job. Why there is no post after july 2016.

    ReplyDelete
  3. Company has taken strict measures to close their legacy gold loan accounts.

    ReplyDelete