Muthoot Finance (MFL), with gold loan portfolio of ~Rs130bn,
is the largest gold financing company in India. With ~20%
market share in gold loan business, the company caters to the
needs of ~4.1mn customers. A NBFC-ND-SI, MFL has 67% of its
branches located in gold-rich region of South India and
accounts for 75% of total loan portfolio from this region.
With immense potential for growth in the organized gold loan
market, we believe a) early entry and leadership position in
this niche segment b) wide spread geographical reach with
presence primarily in rural and semi-urban markets c) lower
LTV ratio (60%-90% of the gold content of the jewellery) with
adequate collateral d) smaller ticket size with loan portfolio at
less than 1-year, e) adequate capital with healthy return ratios
and f) minimal concerns on asset quality with NPA recognition
policy, should drive valuations for the company. SUBSCRIBE.
Immense growth potential in organized gold loan market
According to IMaCS Industry Report, 2010, India accounted for 10% of
the total world gold stock in FY10 with annual demand for gold pegged
at 700 tonnes. Gold-based financial products viz gold coins and bars,
ETFs and lending against gold have gained traction particularly
amongst retail consumers. With organized gold loan market estimated
at Rs350-400bn, lending against gold has emerged as a most popular
instrument in recent past. Further, with <5% of gold being pledged;
75% of which is pledged to unorganized market, we believe the gold
loan industry is poised for healthy growth.
NBFCs better placed vis-à-vis Banks
MFL and other similar NBFCs are better placed as compared to banks
owing to their flexibility, quick disbursal and an informal lending
environment. Also with presence in rural and semi-urban markets,
particularly in un-banked areas and relatively higher LTV ratio (60%-
90% offered vis-à-vis 55%-65% offered by banks) NBFCs are in
position to command premium rates and thereby enjoy healthy
margins. Share of NBFC in gold loan market has improved from 18%
in FY07 to over 32% in FY10.
Key risks remains: a) Mono-line stream of revenue with exposure
predominantly in Southern India b) increasing competition in the gold
loan space by banks and other NBFCs c) steep decline in gold prices.
is the largest gold financing company in India. With ~20%
market share in gold loan business, the company caters to the
needs of ~4.1mn customers. A NBFC-ND-SI, MFL has 67% of its
branches located in gold-rich region of South India and
accounts for 75% of total loan portfolio from this region.
With immense potential for growth in the organized gold loan
market, we believe a) early entry and leadership position in
this niche segment b) wide spread geographical reach with
presence primarily in rural and semi-urban markets c) lower
LTV ratio (60%-90% of the gold content of the jewellery) with
adequate collateral d) smaller ticket size with loan portfolio at
less than 1-year, e) adequate capital with healthy return ratios
and f) minimal concerns on asset quality with NPA recognition
policy, should drive valuations for the company. SUBSCRIBE.
Immense growth potential in organized gold loan market
According to IMaCS Industry Report, 2010, India accounted for 10% of
the total world gold stock in FY10 with annual demand for gold pegged
at 700 tonnes. Gold-based financial products viz gold coins and bars,
ETFs and lending against gold have gained traction particularly
amongst retail consumers. With organized gold loan market estimated
at Rs350-400bn, lending against gold has emerged as a most popular
instrument in recent past. Further, with <5% of gold being pledged;
75% of which is pledged to unorganized market, we believe the gold
loan industry is poised for healthy growth.
NBFCs better placed vis-à-vis Banks
MFL and other similar NBFCs are better placed as compared to banks
owing to their flexibility, quick disbursal and an informal lending
environment. Also with presence in rural and semi-urban markets,
particularly in un-banked areas and relatively higher LTV ratio (60%-
90% offered vis-à-vis 55%-65% offered by banks) NBFCs are in
position to command premium rates and thereby enjoy healthy
margins. Share of NBFC in gold loan market has improved from 18%
in FY07 to over 32% in FY10.
Key risks remains: a) Mono-line stream of revenue with exposure
predominantly in Southern India b) increasing competition in the gold
loan space by banks and other NBFCs c) steep decline in gold prices.
Strong business model with limited risk
With over 70-years of operating history in gold loan business, MFL is
engaged in the business of providing personal and business loans
secured by gold jewellery, or Gold Loans, to individuals who possess
gold jewellery but could not access formal credit within a reasonable
time, or to whom credit may not be available at all, to meet
unanticipated or other short-term liquidity requirements. MFL operates
through 2,611 branches spread pan-India and has catered to needs of
over 4.1mn customers predominantly based in under served rural and
semi-urban areas. It has witnessed a stupendous 81% CAGR in its
gold loan portfolio over FY08-Feb,2011 and involves lending to small
businessmen, vendors, traders, farmers and salaried individuals, who
for reasons of convenience, accessibility or necessity, avail of credit
facilities by pledging their gold jewellery from the company.
67% of MFL branches are located in gold-rich region of South India
which cumulatively accounted for ~75% of total loan portfolio as at
Feb-11. In addition to wide-spread reach and strong expertise in
lending business, lower LTV with smaller ticket size (typically 60%-
90% of the gold pledged), adequate collateral, internally set KYC
norms and in-house staff for the purpose of appraising the quality of
the gold has ensured a clean, attractive and a secure business environment.
With over 70-years of operating history in gold loan business, MFL is
engaged in the business of providing personal and business loans
secured by gold jewellery, or Gold Loans, to individuals who possess
gold jewellery but could not access formal credit within a reasonable
time, or to whom credit may not be available at all, to meet
unanticipated or other short-term liquidity requirements. MFL operates
through 2,611 branches spread pan-India and has catered to needs of
over 4.1mn customers predominantly based in under served rural and
semi-urban areas. It has witnessed a stupendous 81% CAGR in its
gold loan portfolio over FY08-Feb,2011 and involves lending to small
businessmen, vendors, traders, farmers and salaried individuals, who
for reasons of convenience, accessibility or necessity, avail of credit
facilities by pledging their gold jewellery from the company.
67% of MFL branches are located in gold-rich region of South India
which cumulatively accounted for ~75% of total loan portfolio as at
Feb-11. In addition to wide-spread reach and strong expertise in
lending business, lower LTV with smaller ticket size (typically 60%-
90% of the gold pledged), adequate collateral, internally set KYC
norms and in-house staff for the purpose of appraising the quality of
the gold has ensured a clean, attractive and a secure business environment.
With loan portfolio being primarily short term in nature (less than 1-
year); MFL has maintained an adequate ALM. Its borrowings are
typically short to medium term in nature and comprises of redeemable
non-convertible debentures (41%) and cash credit from banks
including working capital demand loans (58% of total borrowings).
Further, with superior credit rating, MFL has been in position to borrow
at competitive rates, thereby enjoying healthy 8%+ margin.
In addition to gold loan business, MFL also acts as sub-agent of
various registered money transfer agencies and provides money
transfer services through its branches. It has also commenced the
business of providing collection agency services and operates three
windmills of 1.25MW each in the state of Tamil Nadu. Going forward,
MFL plans to expand its reach in North and West India and also tap
upper-middle income and upper income group by introduction of gold
loan product – “Lifestyle product”.
Company Backgroundyear); MFL has maintained an adequate ALM. Its borrowings are
typically short to medium term in nature and comprises of redeemable
non-convertible debentures (41%) and cash credit from banks
including working capital demand loans (58% of total borrowings).
Further, with superior credit rating, MFL has been in position to borrow
at competitive rates, thereby enjoying healthy 8%+ margin.
In addition to gold loan business, MFL also acts as sub-agent of
various registered money transfer agencies and provides money
transfer services through its branches. It has also commenced the
business of providing collection agency services and operates three
windmills of 1.25MW each in the state of Tamil Nadu. Going forward,
MFL plans to expand its reach in North and West India and also tap
upper-middle income and upper income group by introduction of gold
loan product – “Lifestyle product”.
Muthoot finance is a flagship company of the Muthoot Group based in
Southern India. The group has a presence in diverse businesses
including financing, healthcare, real estate, education, hospitality,
forex, wealth management services, money transfer services, power
generation and entertainment.
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