Gold lending outlook optimistic for Muthoot Finance but weak subsidiaries weigh


Gold lender Muthoot Finance Ltd has shown all signs of second wave pressure on its balance sheet in its June quarter measures. No wonder investors were angry with the lender, as evidenced by the nearly 3% drop in stocks on Monday.

The company released its June quarter results on Friday after market hours.

The non-bank finance company (NBFC) recorded an increase in delinquencies for the quarter under review, an indication that borrowers were unable to repay even their emergency loans on time. Of course, urgency is only one of the objectives, although dominant, for which a gold loan is generally taken out in India. Average monthly collections fell sequentially, the fallout from phased regional blockages observed during the quarter due to the second wave of the pandemic. Stage 3 gross assets increased 38% sequentially to 1.22% of the total portfolio. Supplies have tripled sequentially due to mounting stress. Meanwhile, lockdowns meant Muthoot Finance couldn’t reach new clients for disbursements. This resulted in a sequentially stable corporate loan portfolio and lower disbursements. Gold Loan Assets Under Management (AUM) remained stable at 52,100 crore in June.

Despite these disappointments, analysts believe the outlook is positive for the lender. “Gold prices rose 11% from March 2021 to May 2021 and moderated 5% from the peak, while remaining 9% above March 2021 levels. We believe this rally should support Muthoot’s gold lending activity; the benefit was not visible in the first quarter due to the foreclosure, but could likely be reflected in the next few months, ”those at Kotak Institutional Equities wrote in a note. Management is confident of achieving 15% loan growth in FY22. Analysts at Motilal Oswal Financial Services Ltd point out that rising gold prices bode well for Muthoot Finance as loan-to-value ratios declined and prevented the company from auctioning gold in all markets. States. the accounts of the borrowers show pain.

Muthoot Finance’s stakes come from its subsidiaries. Its housing finance, microfinance and auto finance businesses posted poor performance and an increase in delinquencies. Muthoot Home Finance saw a sharp rise in gross bad debt to 5.9% of its portfolio. Note that home loans are one of the most secure segments of credit. Disbursements are down and management is heading towards a weak trajectory ahead, at least for another quarter. Auto finance and microfinance also showed signs of strain, with Muthoot Money and Belstar reporting higher defaults.

Muthoot Finance shares are up 24% since April and are trading at a multiple of four times the estimated book value for fiscal year 22. To keep these valuations going, the lender needs the help of its subsidiaries, although the outlook for major gold loans remains positive.

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