Muthoot Finance Expects Revenue To Grow 15% In FY21

“We're sure this will be easily achieved,” George Alexander Muthoot, managing director at the gold loan provider, told BloombergQuint in an interview. The company, he said, will grow even faster if economic activity picks up in the coming three-four months.

The financier’s biggest clientele—small business owners, traders and shopkeepers—need money to restart their businesses. “Some of the payments they expected from elsewhere may not be exactly forthcoming at the correct time and they need to stock up for Onam and Diwali,” Muthoot said. While traditional banks and some non-bank lenders take more time to grant loans, Muthoot Finance can give loans in a “jiffy”, he said.

The rise in prices of the yellow metal have also led to more attention towards gold loans and the ornamental business in general, which only increases the company’s market, he said.

Muthoot Finance’s growth in terms of gold lending and assets under management has been intrinsic to the rise in gold prices in the last five years, while growth of its other lending business has been softer in comparison. Its revenue rose 28% in FY20 against a growth of 8% in FY19, as margins expanded and operating costs fell.

Still, Kotak Institutional Equities expects the company’s net interest margin and return on equity to compress, going forward. The brokerage also raised concerns over the gold financier's high valuations—three times the estimated book of FY22. That, it said, may not be justified. “The yields of the company are significantly higher than the loan-term average and we expect it to decline,” the brokerage said in a report. That may put pressure on the company's profitability, it said.

But Muthoot said the company's net interest margins are high because it has its own capital which is very, very high. "But if you look at the spread, it's at about 10% (+/-1%), and we will retain that for our business." Its return on equity, too, will likely stay around 25%, Muthoot said.

That corroborates with the estimates of Edelweiss, which sees a unique medium-term combination of strong growth and an impressive return on equity of 28%, "not to mention the low asset quality risk—the biggest draw in current circumstances”.

Of the 14 analysts tracking the Muthoot Finance stock, eight have a 'buy' rating, five recommend a 'hold' and one suggests a 'sell'. The average of Bloomberg consensus 12-month price targets implies an upside of 5.7%.

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