Muthoot Finance Limited Q1 FY23 Earnings Conference Call Insights

Key highlights from Muthoot Finance Limited (MUTHOOTFIN) Q1 FY23 Earnings Concall

Management Update:

• MUTHOOTFIN said that growth has been lower partly due to the branches focusing on migration of teaser loans that were under low rates to the higher rate scheme.

• The company said RBI recently gave it permission to open 150 branches out of which a few branches were opened in July and expect to complete it by Oct. 2022. The additional branches will help increase the AUM in the coming quarters in FY23.

Q&A Highlights:

• Dhaval Gada from DSP asked to quantify the teaser rate impact, how much would be impact that would get reversed from 2Q23. George Muthoot MD replied that teaser rates were stopped in March and all teaser rates have been migrated to higher rates as of June 30, 2022. In coming quarters, the company expects yields coming back to higher yield. By 3Q22, the things will be fully on track.

• Dhaval Gada from DSP asked about the expectation in terms of borrowing and cost of borrowing for the rest of year. George Muthoot MD answered that the borrowing costs have been going up. The company doesn’t expect a significantly higher increase in overall cost of borrowing, but added that it might go up.

• Alpesh Mehta of IIFL enquired about the yield improvement expected for the rest of FY23 from current levels. Oommen Mammen CFO replied that going forward the company should improve the spreads and the overall objective is to maintain a spread above 10% for rest of FY23.

• Piran Engineer with CLSA asked if there were any auction in 1Q23 and the quantum of it. Oommen Mammen CFO replied that auctions were INR1,374 crores.

• Piran Engineer with CLSA asked that if reducing liquidity is going to be an ongoing exercise or a one-off thing. Oommen Mammen CFO said that the company thought of reducing liquidity a little bit as it has been maintaining higher liquidity.

• Amit Mantri of 2Point2 Capital asked about the INR1,300 crores of auction and the interest loss on it. George Muthoot MD replied that the auction realization was INR1,800 crores including the interest.

• Amit Mantri of 2Point2 Capital also asked about the increase in interest rates from the earlier regime to the new regime now. George Muthoot MD answered that it was done in two tranches, one was done in May. And the second one was done now, increasing another 1.5 percentage, almost 300 BP has been increased on fresh loans.

• Shweta Daptardar from Elara Capital enquired how much incrementally does a new branch add to the AUM on an annual basis. George Muthoot MD replied that it takes about 1-2 years for a branch to mature and by that time it should reach about INR6-7 crores.

• Shweta Daptardar from Elara Capital also asked about the growth outlook with new branches opening now. George Muthoot MD answered that with new branches the company can get into new unbanked areas with lot of potential. This will help to spread the company and attract new and more customers. And the growth outlook is between 10-15%.

• Bunty Chawla with IDBI asked about interest accrued on loans as of FY23. Oommen Mammen CFO replied that as of March it is INR1,955 crores and June it is INR1,700 crores.

• Hitesh Gulati from Haitong enquired about the new number of customers added in 1Q23 and the written off customers. Oommen Mammen CFO replied that the company added 3.14 lakh new customers during 1Q23 and there are no written off customers the company has.