Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Muthoot Finance Ltd (BOM:533398, Financial) reported the highest-ever standalone profit after tax of INR1,079 crores and consolidated profit after tax of INR1,196 crores for the quarter.
- The consolidated loan assets under management crossed INR98,000 crores, with standalone loan assets under management at INR84,324 crores.
- The company successfully raised $650 million through global issuance of bonds and opened 280 new branches.
- Subsidiaries like Belstar Microfinance and Muthoot Home Finance showed significant growth, with Belstar's profit after tax increasing to INR19 crores and Muthoot Home Finance's loan assets growing to INR2,199 crores.
- Muthoot Finance Ltd (BOM:533398) has been selected for the FATF, Financial Action Task Force, on-site mutual evaluation report on India, highlighting its compliance and operational excellence.
Negative Points
- The company faced technical difficulties during the earnings call, impacting the clarity of some responses.
- There was a significant increase in impairment of financial instruments, amounting to INR375 crores, primarily due to ECL provisions and an increase in Stage III assets.
- Despite strong growth, the company maintained a conservative guidance of 15% AUM growth, which some analysts felt was too cautious given the current performance.
- The GNPA (Gross Non-Performing Assets) for Muthoot Money and other subsidiaries, although declining, still posed a concern for investors.
- Operational expenses increased, leading to a higher cost-to-assets ratio, which was attributed to the impairment provisions and other operational costs.
Q & A Highlights
Q: Congratulations on the strong results. Can you provide insights on the gold loan growth and the expected run rate for the next few quarters?
A: The tonnage growth is directly proportional to the gold price. If the gold price remains steady or increases, the tonnage will follow suit. Regarding top-up loans, as long as they are within the 75% LTV cap, we are not concerned. Our average loan-to-value for gold loans is currently 63%. We maintain a guidance of 15% AUM growth for the year and will reassess after Q2.
Q: Can you explain the significant increase in impairment of financial instruments?
A: The impairment is due to ECL provisions, which are based on the PD and LGD percentages. This quarter saw an 11% growth in loans, leading to higher provisions. Additionally, there was an increase in Stage III assets, for which we make a 10% provision. However, we do not expect any cash loss from these provisions.
Q: What is driving the uptick in new customer acquisition and fresh loans to inactive customers?
A: Several factors contribute, including increased credit requirements and possibly reduced competition from banks. Muthoot Finance's focus on gold loans and customer-friendly practices have also played a significant role in attracting new customers.
Q: Why haven't you revised the guidance upward despite strong Q1 performance?
A: We prefer to reassess and potentially revise our guidance after Q2. The trends in July and August have continued positively, but we want to ensure consistency before making any changes.
Q: Can you provide details on the impairment of financial instruments and its impact on financials?
A: The impairment is primarily due to ECL provisions, which are calculated based on the PD and LGD percentages. This quarter saw an 11% growth in loans, leading to higher provisions. Additionally, there was an increase in Stage III assets, for which we make a 10% provision. However, we do not expect any cash loss from these provisions.
Q: What is the reason for the increase in Stage III assets, and do you expect this trend to continue?
A: The increase in Stage III assets is primarily due to our customer-friendly approach of giving extra time for repayment instead of auctioning the gold. We are in the money, and customers are aware of the value of their collateral. We do not see any significant stress in the market affecting these customers.
Q: Can you provide the auction numbers for this quarter and last quarter?
A: This quarter, the auction amount was INR68 crores, compared to INR162 crores in the last quarter. The increase in GNPA is mainly due to our decision to accommodate customers and avoid frequent auctions.
Q: How do you see the impact of the recent drop in domestic gold prices on demand?
A: The gold price has seen fluctuations, but the overall trend remains positive. The recent drop in domestic prices was due to a reduction in customs duty, but international prices have been recovering. We continue to see good disbursement levels.
Q: What is your strategy if competition from banks and other NBFCs intensifies again?
A: Muthoot Finance has its own strategy for growth and is not dictated by competitors' actions. We focus on providing the best service to our customers and maintaining reasonable margins. We will continue to adapt as needed to maintain our market position.
Q: Can you provide insights on the personal loan portfolio and branch expansion plans?
A: Our personal loan portfolio includes both cross-sell to existing customers and open market customers. We plan to open around 100-150 new branches this year, based on regional office assessments of potential growth areas.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
