Edelweiss' research report on Muthoot Finance
Muthoot Finance (Muthoot) delivered steady Q3FY17 performance in an otherwise challenging quarter. As against fears of gold loan companies bearing major brunt of demonetisation, Muthoot’s business practices helped it recover swiftly with: a) AUM growth of 8% YoY versus initial expectation of decline; and b) GNPLs rise restricted to 2.9% (2.2% in Q2FY17; a technical increase which management expects to recoup in Q4FY17).
Outlook
NIMs were softer on lower yields (lower collections, higher interest income reversal), though funding cost will benefit from retirement of long-term borrowings over next few quarters, which will help sustain/improve NIMs. Revenue tailwinds, along with normalised auctions and controlled costs will enable Muthoot deliver >25% earnings CAGR over FY16-19E. Maintain ‘BUY’.
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