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Share price of gold loan companies declined on fear of negative impact on the loan-to-value (LTV) ratio of disbursed loan due to falling value of underlying jewellery stocks following steep decline in the prices of gold.
Industry leader Muthoot Finance Ltd reported a fall of 2.32% in its stock price to Rs 208.5 apiece after hitting the day’s high of Rs 212 apiece in early Monday trade.
The share price of Manappuram Finance Ltd also declined by 1.59% to Rs 27.90 apiece after hitting the day’s high of Rs 28.20 apiece.
The fall was largely attributed to steep decline in gold price which may squeeze margins of gold loan companies. Gold price in India declined by 9% in one year and a steep 30% in two years following global move to trade on Monday at Rs 25,520 per 10 grams.
“Falling gold price is a negative as far as growth outlook of gold loan companies is concerned. They will have to lend lower amounts against the same quantity of gold, so this will pressurize AUMs. At the same time, costs remain fixed and pull down profitability. We don’t think there is any big impact on asset quality as they lend at 75% LTV,” said Digant Haria, Research (NBFCs), Antique Institutional Equities.
Nischint Chawathe, an analyst with Kotak Institutional Equities (KIE), said, “Falling bullion price should impact gold loan companies to the extent of their ability to manage the risk.”
A recent report from KIE showed, Muthoot recently launched gold-loan products catering to the middle class such as home loan margin funding facility, gold overdraft facility, etc. Slowdown in gold loans over the past three years (on the back of 75% loan book compounded annual growth rate during FY2007 - 12) has likely prompted the company to get more assertive on marketing, an exit from a transaction-oriented approach followed earlier.
“We have sufficient margins, as we are giving a maximum LTV of 75% only. Ours is a short term loan, and as such gradual fall in gold prices have not affected us. As we are going through a lower LTV regime, customers have to bring in more gold to get their required amount. We have sufficient risk management systems in place and our LTV is revised on a weekly basis,” said George Alexander Muthoot Managing Director, Muthoot Finance.
Gold price in the international market fell to hit five year low at $1088 an oz in early Asian trade after Chinese traders reported to have sold 5 tonnes. But, brisk buying by wary traders helped a smart recovery to trade currently at $1115.8 an oz in mid-European trade.
In India, spot gold slipped proportionately to Rs 25,235 per 10 grams early Monday but recovered to sustain Rs 25500 per 10 grams later on.
Muthoot’s asset under management (AUM) rose to Rs 23,405 crore (131 tonnes) by Q4, 15 from Rs 22,088 crore (123 tonnes) in the previous quarter. In volume term, AUM with Manappuram stood at 53.2 tonnes in Q4, ’15 from 50.2 tonnes in the previous quarter.
Industry leader Muthoot Finance Ltd reported a fall of 2.32% in its stock price to Rs 208.5 apiece after hitting the day’s high of Rs 212 apiece in early Monday trade.
The share price of Manappuram Finance Ltd also declined by 1.59% to Rs 27.90 apiece after hitting the day’s high of Rs 28.20 apiece.
The fall was largely attributed to steep decline in gold price which may squeeze margins of gold loan companies. Gold price in India declined by 9% in one year and a steep 30% in two years following global move to trade on Monday at Rs 25,520 per 10 grams.
“Falling gold price is a negative as far as growth outlook of gold loan companies is concerned. They will have to lend lower amounts against the same quantity of gold, so this will pressurize AUMs. At the same time, costs remain fixed and pull down profitability. We don’t think there is any big impact on asset quality as they lend at 75% LTV,” said Digant Haria, Research (NBFCs), Antique Institutional Equities.
Nischint Chawathe, an analyst with Kotak Institutional Equities (KIE), said, “Falling bullion price should impact gold loan companies to the extent of their ability to manage the risk.”
A recent report from KIE showed, Muthoot recently launched gold-loan products catering to the middle class such as home loan margin funding facility, gold overdraft facility, etc. Slowdown in gold loans over the past three years (on the back of 75% loan book compounded annual growth rate during FY2007 - 12) has likely prompted the company to get more assertive on marketing, an exit from a transaction-oriented approach followed earlier.
“We have sufficient margins, as we are giving a maximum LTV of 75% only. Ours is a short term loan, and as such gradual fall in gold prices have not affected us. As we are going through a lower LTV regime, customers have to bring in more gold to get their required amount. We have sufficient risk management systems in place and our LTV is revised on a weekly basis,” said George Alexander Muthoot Managing Director, Muthoot Finance.
Gold price in the international market fell to hit five year low at $1088 an oz in early Asian trade after Chinese traders reported to have sold 5 tonnes. But, brisk buying by wary traders helped a smart recovery to trade currently at $1115.8 an oz in mid-European trade.
In India, spot gold slipped proportionately to Rs 25,235 per 10 grams early Monday but recovered to sustain Rs 25500 per 10 grams later on.
Muthoot’s asset under management (AUM) rose to Rs 23,405 crore (131 tonnes) by Q4, 15 from Rs 22,088 crore (123 tonnes) in the previous quarter. In volume term, AUM with Manappuram stood at 53.2 tonnes in Q4, ’15 from 50.2 tonnes in the previous quarter.
