Thread by @ViaWealthy

Muthoot Finance and Gold Loan sector - Thread

We are holding this stock in 5GCPM arthavruddhi.smallcase.com/smallcase/AVCM…

Stock has already given 23% returns since recommendation.

Contact us at [e-mail] or [phone] for more details & research reports.

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India is one of the biggest markets for gold and gold loan. According to World Gold Council, India accounts for 10% of total world gold stock and is world’s largest gold consumer, India accounted for 23% gold loan demand globally.

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India's gold loan market is expected to reach Rs 4,617 billion by 2022 at a 5Y compounded annual growth rate of 13.4%.

Approx 35% of the gold loan market with commercial banks, NBFCs and small finance banks being the key players. The unorganized segment is twice as large.

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There are two major opportunities that organized gold loan players perceive at this point of time. Firstly, the predominance of unorganized money lenders in the gold loan business is a major opportunity to bring them under the regulated ambit.

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This ensures lower rates of interest and tighter RBI regulation. Secondly, out of the 22,000 tonnes of gold that Indian households currently own (worth $1.20 trillion) this value has grown from $900 billion to $1.20 trillion.

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In one year on the back of the 30% accretion in gold prices, only 5% has been pledged for raised loans. This is a huge opportunity to monetize gold holdings. This is more so in rural pockets! Rural India accounts for 67% of this gold stock

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Extremely skewed market share between the unorganized and the organized gold loan sector (75:25) for long time.

Gold loans are disbursed more quickly with minimal procedural requirements (NBFC 45 minutes /banks same day).

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The consumer friendly features of the gold loan market distinguish itself from other sources of credit. Organized gold loan market has grown at 40% CAGR from 2002 to 2010 in first big phase growth.

Data source: Inperson enquiries at the branches & KPMG report.

Why Banks won’t be coming near to biggest gold loan lender - Muthoot Finance ?

1) Gold Loan NBFCs have dominated the organized gold loan market with 37% market share.

2) Of these 37%, the Top 3 NBFCs contrinute 90% of the market.

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Behavioural difference: Banks & NBFC:

1. Beyond bank hours
2. Representative driven
3. Confidential from society about borrowing (corner branches instead of main location)

“Undergarments are not sold well in shopping mall, privacy & confidentiality are valuable”

10/n

Test of Time:

1. LTV norms
2. PSL status removal
3. Demonetisation
4. Liquidity issues
5. Cost of funds trend
6. Restricted credit exposure % to 7.5 from earlier
7. Digital revolution specially by NBFC
8. Core focus

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GOLD HOLDING PER CUSTOMER IN GRAMMES IS LESS THAN 3 TOLA (30 GRAMS).

NCD growth is half the AUM growth where as by ratio NCD are 15-20% by value to AUM.

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MUTHOOT FINANCE : DATA POINTS

1) 5330 Branches spread over 29 states and 6 UTs.
2) 6 million Customers in portfolio.
3) 2 Lakh customers serviced each day.
4) 133 years of Existence.
5) 170 Tonnes of gold jewellery when RBI has 700 tonnes.

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6) Consolidated Gross Loan Assets grew by 22% this year to 46,870 Crore and Profit by 51%.

7) Largest Gold Financing Company in India in terms of loan portfolio

8) iMuthoot loan app has 1 million plus downloads

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Financial position :

Fund Raising side : In Feb 2020 , Muthoot Finance raises $550 million from international bond market for a 3.5—year tenor at 4.4%. company had successfully placed $450 Million for a 3—year tenor at 6.125% in October 2019.

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Operational expenses to Net Income is now at 30.7% , which is lowest in last 5 years. Where as PAT /income is highest at 50% in last 5 years. CAR at 25.6% with Tier I capital at 24.3%

Largest player with overall 15% plus market share distant away from 2nd or 3rd players.

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5GCPM Framework - Evaluation

5 growths: Yes

Corp Governance: Checked on related party and promoter reputation, business execution expertise. Found it to be better in Industry.

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Practicability: In practical terms, strong foothold in south India, Ability to capture gold price growth
opportunity, 15 % growth guidance, SME opting for gold loans when banks are conservative, posed well.

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Risk checks done. Gold loan co have gold price correlation. Current LTV is 60%, hence chance to give additional loan is up to 70% i.e. 16 % on current existing loans.

Sticky customers & history checks. Track of other loans and payment patterns. Long term trend is positive.

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Muthooth Vs Mana:

Given the current gold scenario, growth guidance from the management, commentary from various banks to push their Gold loan book, Shrinkage in Non collateral loans etc.

Considering all points, we continue to remain bullish on Gold loan sector in near term.

-Wealthyvia

Disclosure:

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