Muthoot Finance Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Muthoot Finance Limited (MUTHOOTFIN) Q3 FY22 Earnings Concall

Management Update:

• The company had a flat growth for the gold loan business in 3Q22 and expects to see growth in AUM in 4Q22. MUTHOOT’s Subsidiary companies, except the microfinance business, came down in 3Q22 due to the economic scenario, while insurance broking business did well.

Q&A Highlights:

• Ankush Agarwal from Surge Capital asked that with the interest rates inching higher, how it affects the company and does it have room to charge higher yield to its customers and maintain spread. George Muthoot MD said the company has been able to maintain its spread and yield in spite of reducing yields. However, going forward, the company doesn’t see a great surge in the borrowing cost. Overall if interest rates are going up, the company would also increase the rates.

• Ankush Agarwal from Surge Capital enquired about the growth of the gold loan business, and what are the key drivers of growth of this business. George Muthoot MD said the overall uptick in the economy is what the company is looking at. The company is seeing businesses opening up and mainstay MSME customers are restarting business, which will increase businesses and should maintain a reasonable growth rate going forward.

• Ankush Agarwal from Surge Capital also asked about how aggressive the company is in the medium to long-term in terms of diversification into other lending products. George Muthoot MD answered that the microfinance sector is reasonably well placed and things are getting into control, showing growth. On the affordable home finance, vehicle finance and personal loan business, the company said it is going a bit cautious.

• Deepak Gupta with Reliance Nippon Life asked about the quantum of auction done for 3Q22 and comparison with 2Q22 and 3Q21. George Muthoot MD said that in 3Q22, the company has done INR2,800 crores and last year it was negligible.

• Deepak Gupta with Reliance Nippon Life asked that LTV (loan to value) came down sharply in 3Q22, and if it was due to rise in gold prices by 5% QoQ. George Muthoot MD said the LTV is based on today’s gold price. If the gold price is soft the LTV will be lower. The average LTV as on Dec. is 60% and last quarter it was 73%. Therefore, the decline was due to price.

• Deepak Gupta with Reliance Nippon Life asked about the loan growth target of 12-15%, if it’s achievable for FY22. George Muthoot MD said the company is trying its best but things are not fully in its hands. In 3Q22 the company did some repayments, but 4Q22 should do better and there will be growth in the quarter.

• Vivek Ramakrishnan of DSP Mutual Fund queried about the sharp fall in Stage 2 loans. Oommen Mammen CFO said that in 2Q22 Stage 2 were 6,153 and it became Stage  3 in 3Q22, which was either recovered, auctioned off or some are remaining as Stage 3 assets. 3Q22 Stage 2 has falled and it’s because of a sudden surge in disbursements last year post the first lockdown. However, from 3Q21 it’s a more normalized disbursement.

• Gaurav Kochar of Mirae Asset asked about the cost of funds coming down sharply in 3Q22 and the cost of funds for the quarter. George Muthoot MD said the company is raising somewhere between 7-7.5% — maybe 7.25% or 7.3% on the bank funding depending on the tenure. And on the securities market, on the NCDs it’s even lower. The company should see the cost of funds coming down significantly in the next six months.

• Kartik Sahni from Mirae Asset also asked about number of active customers seeing a decline of about 2% sequentially and what’s company strategy and target growth.  George Muthoot MD said the decline was due to more releases. New customer additions have been steady and MUTHOOT have added 3.5 lakh new customers. However, some customers went away from the book due to auctions and releases etc.

• Piran Engineer of CLSA asked if the company reverses the accrued interest after 90-days past due to immediately on 1-day past due. George Muthoot MD said the company does it after 90-day past due. And from an accounting perspective, MUTHOOT will reverse the full 15 month accrued interest.

• Abhijit Tibrewal from Motilal Oswal asked about interest income reversals on loan becoming an NPA and if the company would see the reversal of the interest income taken during 3Q22 when in 4Q22 the auctions are done and NPAs come off.  George Muthoot MD said there would not be a reversal but the interest income will be higher and the new loans on which interest is accrued will be higher. There is no need of reversal but new things will come.

• Manan Tijoriwala from ICICI Prudential asked what would be the quantum of asset that would be above 3 lakh ticket size in the portfolio currently. George Muthoot MD replied that it’s 20%.