Muthoot Finance in a comfortable space, says Nirmal Bang

Muthoot Finance Ltd (MFL) is the largest gold loan NBFC in India in terms of loan portfolio and provides personal and business loans secured by gold jewellery, or gold loans, primarily to individuals. It has the highest branch network among gold loan NBFCs in India at 4,265 branches with a gold loan portfolio of Rs. 22,088 crore as on 31st Dec ’14. 

Muthoot Finance has ~7 million customers with an average ticket size per loan of ~ Rs 40,000. The typical tenure of these loans is 12 months. However, most of these loans are repaid within six months.

The customers generally take loans against gold to meet various short-term demands. The interest rate ranges from 14% to 22% depending on the Loan to Value (LTV) of the loan. Higher the LTV, greater is the interest rate charged. In addition to the gold loan business, the company also provides money transfer services through its branches as sub-agents of various registered money transfer agencies, and recently has commenced providing collection agency services as well

Its other recent initiatives include sale of gold coins and insurance products, among various other servicesINVESTMENT RATIONALE

Worst Is Behind Gold loan NBFCs faced multiple headwinds over the last couple of years and being the industry leader MFL had to bear the brunt of these events, which resulted in a decline in the company’s AUM, driven by sharp slowdown in disbursements.

The industry as a whole at that point in time was facing difficulties, viz. decline in gold prices, to and fro in regulatory stance and general slowdown in the macro environment. Issues That Plagued The Gold Loan Industry In The Last Couple Of Years The gold loan industry started to face headwinds from March ’12. It began with issues like (1) tightening of regulations by the RBI – lowering of the LTV to 60%,

(2) retreat of gold prices from its highs

MFL had suffered in the past two years owing to various regulatory pressures and uncertain macro-economic environment. We believe that the worst is now over for the company and MFL is set to embark on a new growth path. Muthoot Finance Ltd, being the market leader, is best positioned to benefit from improving business sentiment in the gold loan industry as asset quality concerns are likely to abatE.

Source: Nirmal Bang's Beyond Market

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