Gold loan stocks in focus; Muthoot Fin, Manappuram Fin gain up to 15%

Muthoot Finance surged 15% to Rs 478 on Friday, erasing its entire Thursday's 7% fall, Manappuram Finance rallied 7% to Rs 85 on BSE on back of heavy volumes.

Shares of gold loan companies like Muthoot Finance and Manappuram Finance rallied up to 15% on  BSE on back of heavy volumes after Muthoot Finance reported 21% year-on-year (YoY) growth in assets under management (AUM) to Rs 359.56 billion as of September 2018 (Q2FY19).

Muthoot Finance has surged 15% to Rs 478 on Friday, erasing its previous day’s 7% fall, as the company reported highest ever quarterly accretion in gold loans, resulting in all-time high loan book as well as gold stock under possession. The subsidiaries too witnessed positive trends in growth & asset quality.

“Gold loans growth of 16% YoY in Q2FY19 was supported by 11% growth in gold stock under possession. Yields remained stable at 21%, which is close to the card rate on gold loans. We note that there was excess interest income of around Rs 2.5 billion last year in Q2 on account of auctions of its legacy portfolio, which had resulted in portfolio yields of 24%. Although NPAs are not very relevant in the gold loan business, IGAAP NPAs have reduced from highs of 7.0% in Mar18 to 3.2% in Sep18,” analysts at Antique Stock Broking said in result review.

Given that Muthoot Finance generated RoAs of 6% and RoEs of 22%, it has witnessed huge accretion in its tier 1 capital. Its leverage levels (D/E) stands at 2.8x, which will provide huge comfort to any lender. We believe that Muthoot Finance will be able to borrow like in the past, once the liquidity situation eases in the coming quarters, the brokerage firm re-iterates strong ‘buy’ and target price of Rs 583 per share.

The rating agency CRISIL believes that the NPA position of Muthoot Finance will stabilize over next 2-3 quarters as the six month tenure portfolios run down and the company has also increased the pace of auctions in forthcoming months. This is also reflected in the steps taken by the company to reduce NPA levels during the first quarter of fiscal 2019.

At 12:08 pm; Muthoot Finance was trading 13% higher at Rs 472 on BSE, as compared to a 0.40% rise in the S&P BSE Sensex. The trading volumes on the counter jumped 8-fold with a combined eight million equity shares changed hands on the BSE and NSE.

Manappuram Finance rallied 7% to Rs 85 on BSE with a combined 4.58 million shares changed hands on both the exchanges so far.