FPIs hike stake in gold loan companies Muthoot, Manappuram Finance in Q3

Manappuram Finance (up 36 per cent) and Muthoot Finance (up 32 per cent) outperformed the market by surging over 30 per cent since October 2018, as compared to 0.25 per cent rise in Sensex.

Foreign portfolio investors (FPIs) are accumulating equity shares of gold loan companies, as they increased their holdings in Muthoot Finance and Manappuram Finance for the second consecutive quarter on expectations of healthy growth going forward.

In Manappuram Finance, FPIs bought an additional 1.26 percentage point stake to 39.44 per cent during the October-December quarter (Q3FY19). They hold 38.18 per cent stake in the company at the end of the September quarter (Q2FY19).

FPI holding in Muthoot Finance has increased by 0.82 percentage points to 11 per cent from 10.18 per cent in the previous quarter, according to the latest shareholding pattern filed with the stock exchange.

A strong FPIs buying have seen, Manappuram Finance (up 36 per cent) and Muthoot Finance (up 32 per cent) outperforming the market by surging an over 30 per cent since October 2018. In comparison, the S&P BSE Sensex was up marginally by 0.25 per cent during the period.

Since demonetization, growth has been elusive for gold financiers. However, in the past 2-3 quarters, there was a tailwind to growth from increasing gold prices and stronger demand.

“Gold finance companies such as Muthoot Finance and Manappuram Finance operate on extremely low leverage and high balance sheet liquidity compared to other non-banking finance companies (NBFCs). Thus liquidity crisis and related such events can never affect them from growing if demand persists. However, we shall see slight headwinds in growth in Q3 as management takes a cautious stance due to weak macro environment despite no dearth in demand,” the brokerage firm Antique Stock Broking said in NBFC sector update.

For Q3FY19, Muthoot Finance’s assets under management (AUM) are expected to grow 18 per cent year-on-year (YoY). We think Q3FY19 should continue with growth streak in gold finance disbursement. We think this growth will be led by both volume and pricing gains. Margins are expected to be sequentially stable at 9.1 per cent, the brokerage firm Motilal Oswal Securities in results preview.

Analysts at Centrum Broking remain confident of the future prospects of Manappuram Finance on the back of the Kerala floods having a negligible impact on the asset quality and recoveries improving across segments. With declining non-performing assets (NPAs) and business growing at a healthy pace, we expect profitability to remain high with +4 per cent RoA and around 20% RoE.

The structural revival in gold lending has been underway since Q2FY18-end with gold AUM growth of 17 per cent YoY in Q2FY19, which is a fairly attractive growth rate for loans against gold, given it is a business of high sustainable margin and low credit costs and, thus of high steady-state RoA, analyst at Nirmal Bang Equities said in Q2FY19 result update.