Muthoot Finance Limited
Know the Company
Muthoot Finance Ltd (MFL), a leading non-banking financial company (NBFC) is the flagship company of Kerala based Muthoot Group. Established in 1939 as a partnership firm called ‘Muthoot Bankers’, the company has evolved into a trusted and reliable financial institution over the decades. Muthoot Finance received its NBFC license in 2001, marking its official foray into the gold loan business. Today, it stands as a “Systemically Important Non-Deposit Taking NBFC” (NBFC-ND-SI) with a robust presence in several areas of the financial services sector. As of March 2024, Muthoot Finance group boasts a pan-India network of 6,541 branches, with a significant 59% of those located in South India, serving over 250,000 customers daily.
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Specializing in gold loans, Muthoot Finance has become synonymous with quick and hassle-free access to funds backed by physical gold, catering to the immediate financial needs of millions of Indians. While gold loans remain the cornerstone of its revenue, contributing to 90% of the company’s income, Muthoot Finance has diversified its offerings to include Wealth management, microfinance, insurance broking, money transfer, and home loans, etc. Additionally, the company provides a variety of retail loan products, including personal loans, business loans, and two-wheeler loans, designed to meet the financial aspirations of both individuals and businesses. This diversification strategy underscores Muthoot Finance’s commitment to catering to the evolving financial needs of its customers, reinforcing its position as a leading financial services provider in India.
Subsidiaries
Muthoot Finance is the holding company of the group and has the following seven subsidiaries under it, as of March 31, 2024.
- Muthoot Homefin (India) Ltd: Affordable Housing Finance: 100%
- Belstar Microfinance Limited: – Microfinance: 63.9%
- Muthoot Money Limited: Vehicle Finance: 100%
- Asia Asset Finance PLC : Listed Diversified NBFC in Sri Lanka : 72.92 %
- Muthoot Insurance Brokers Private Limited: Insurance Broking: 100%
- Muthoot Asset Management Private Limited – 100%
- Muthoot Trustee Private Limited – 100%
Muthoot Homefin India Limited (MHIL) is a Housing Finance Company registered with The National Housing Bank (NHB). Its focus is on extending Affordable Housing Finance for low- and Middle-income group families. It has an average ticket size of Rs 10-11 lacs. MHIL planningto concentrate its operations in Maharashtra (including Mumbai), Gujarat, Rajasthan, Madhya Pradesh, TN and Kerala.
Belstar Investment and Finance Limited (Belstar) It is the Micro finance arm of Muthoot Finance. As of March 31, 2024, Belstar operations are spread over 17 states and 2 UT (Tamil Nadu, Andhra Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Kerala, Odisha, Pondicherry, Chhattisgarh, Gujarat, Rajasthan, Bihar, Uttar Pradesh, Uttarakhand ,West Bengal, Haryana, Punjab, Tripura and Delhi. It has 1,014 branches, with 202 controlling regional offices. Its Loan AUM has grown from Rs 2 Crore in March 2009 to Rs 100,2 crore in March 2024
Asia Asset Finance PLC, Sri Lanka (AAF) The Company located in Colombo, Sri Lanka as a 73% foreign subsidiary of Muthoot Finance Ltd. AAF is a deposit taking institution registered with the Central Bank of Sri Lanka and listed in the Colombo Stock Exchange. At present the company is involved in Retail Finance, Hire Purchase & Business Loans and has 85 branches across Sri Lanka.
Muthoot Insurance Brokers Pvt Limited (MIBPL) is an unlisted private limited company holding a license to act as Direct Broker from IRDA since 2013. It is actively distributing both life and non-life insurance products of various insurance companies. During Q4 FY24, it has insured more than 986,000 lives with a First year premium collection of Rs.1,446 million under Traditional, Term and Health products.
Muthoot Money Limited (MML) Started in 2018 as an NBFC, Muthoot Money Limited is a 100% subsidiary of Muthoot Finance Limited which engaged in vehicle and equipment finance operations. The operations are now centered in Hyderabad. As on 31st March, 2024 it has a total loan portfolio of Rs.11,23 crore.
Strengths
Muthoot Finance is the largest gold loan company in India within the organized lending market. The Company’s gold loans are a preferred choice due to their secure and flexible features, including voluntary interest-only payments during the loan tenure, no foreclosure charges, and anytime liquidity for instant access to funds. These features have helped the company grow above the industry average in recent years.
Muthoot finance’s consolidated loan assets under management (AUM) crossed Rs 89,000 crores and stand-alone AUM has crossed the milestone of Rs 75,000 crores in FY2024. The consolidated assets under management increased by 25% year-on-year and the stand-alone assets under management increased by 20%. The contribution of subsidiaries on loan assets increased to 15% from 12% last year, reflecting its strategic diversification efforts.
Financials at record high: MFL’s consolidated profit after tax for the financial year 2024 increased by 22% year-on-year and stands at Rs 4,468 crores. At the same period its revenue increased to Rs 12635 crore from Rs 10515 crore. The housing finance arm achieved a disbursement of Rs 815 crores in the financial year as against Rs 223 crores in the previous financial year, was the star performer among the group. The micro finance arm also witnessed upward trend, increased loan assets under management by 62% year-on-year, reaching Rs 10,023 crores and profit after tax by 161% to Rs 340 crores. The Company also has a healthy Interest spread which stood at 4.69 in March 2024 as against 4.32% in the March 2023.
Aggressive Fund raising: In terms of the borrowing, MFL raised US$ 650 million in the second half of the previous FY. The proceeds to be used for lending and other activities that are allowed under the Reserve Bank of India’s external commercial borrowing guidelines. During the first quarter of the current financial year, MFL raised Rs 480 crores to the 33rd public issue of secured renewable nonconvertible debentures.
Stellar Growth: Muthoot reporting a steady increase in average revenue per branch. Company’s average gold loan outstanding per branch increased from Rs. 6.7 crore in FY 2017-18 to Rs.13.5 crore in FY 2023-24, basically on account of increase in ticket size. The Company’s customer base stood at nearly 53.6 lakh asof March,2024.
Diversified source of Funds: MFL has a well-diversified source of Funds. As of March 2024, its sources of funds include, Secured Non-Convertible Debentures (listed) is Rs 16390 crore, Bank borrowing of Rs 37058 crore, Commercial paper includes Rs 4617 crore and other sources such as own funds. Capital adequacy ratio of the company significantly improved from 26.05 % in FY 2018-19 to 30.37% in FY 2023-24.
As per the ICRA report, MFL had cash and liquid investments of Rs. 6,883 crore and undrawn bank lines of Rs. 329 crore as on June 10, 2024, with a repayment obligation (excluding interest) of Rs. 11,162 crore between June 11, 2024 and August 31, 2024. A sizeable portion of the repayments (Rs. 6,080 crore) comprises cash credit/short-term loans from banks, which are expected to be rolled over, while the term loan, non-convertible debenture (NCD) and commercial paper (CP) repayments are Rs. 2,561 crore, Rs. 1,337 crore and Rs. 1,184 crore, respectively, during the above-mentioned period. The short-term nature of gold loans provides support to the company’s liquidity profile.
Digital initiatives to target new age customers: The Company gradually implemented Digital innovations to transform its operational framework, enrich customer experience and enhance productivity. It also developed several user-friendly mobile apps to access necessary information and enable 24X7 online transactions. It helps the customers to View gold loan details, online facility to remit interest and principal repayment of loans, online facility to withdraw/top-up eligible amount and renewal of loans.
Changing industry trend: Since the past two decades, India witnessed a paradigm shift in the Gold loan business from unorganized sector to organized sector including Banks and NBFCs. This trend is expected to continue going forward. The current market share of organized sector is around 65% with a loan book size of nearly Rs. 4.6 trillion. Even though the interest rates charging by the NBFC’s are higher than the banks, NBFC’s have an edge over the later on certain points like its extensive network (especially in rural areas), higher loan –to –value ratio, flexible repayment options, long branch working time and ability to serve non-bankable customers.
Industry Structure and Outlooks
Non-banking finance companies are playing an active role over bank financing in India as the former providing last mile credit facility to the rural and semi-urban areas and un-banked regions. MFL, with operating through over 4800 branch network, spread across 29 states and union territories as on March, 2024 that caters short-term financial needs of two lakh customers each day.
In 2015-16, the gold loan market in the country had a value of Rs 1.96 trillion. Presently it stood at around Rs. 4.6 trillion with a compounded annual growth rate (CAGR) of about 12 per cent.
As per estimates, the Indian public holds 21,000 tons of gold in the form of ornaments, but the organized gold lending market is merely 10-12% of it. Considering that gold loans are the easiest option for the general public to raise funds in an emergency, there is still a lot of untapped potential, and this industry leader stands to be a major beneficiary. Furthermore, robust domestic consumption growth, an expanding middle-class segment, and rising aspirations provide ample opportunities for future growth.
Value Unlocking Opportunities
Though the size of non-gold loan businesses running through various subsidiaries are small in size at present, they are growing rapidly. Considering this factor, we can’t rule out value unlocking possibilities in future through de-merger or IPOs of businesses which attain critical size.
Belstar Micro Finance Limited (Belstar) is the first one from the group planning to come out an IPO. Muthoot Finance’s microfinance arm, Belstar Microfinance Ltd, recently filed preliminary papers with capital markets regulator SEBI to raise Rs 1,300 crore through an initial public offering (IPO). The entity’s IPO is a combination of fresh issue of equity shares worth Rs 1,000 crore and an offer-for-sale (OFS) of Rs 300 crore by investor shareholders, according to the draft red herring prospectus (DRHP). Proceeds from the fresh issue worth Rs 760 crore will be used to meet future capital requirements towards lending and the remaining amount will be used for general corporate purposes.
Risk Factors
Gold loan companies in India face several risk factors, including fluctuating gold prices, which can affect the value of collateral and loan recovery. Regulatory changes and compliance requirements can pose significant challenges, potentially impacting the operational and financial performance of gold loan companies. For example, the recent change in the RBI’s regulatory norm limiting cash disbursal to Rs 20,000 may drive customers who prefer cash transactions towards the unorganized sector. In addition to these economic downturns may generally affect the volume of business as well as asset quality.
Sector: Financial Services
Market Price: Rs. 1801.80 as on today
FV: Rs 10/-
Stock Name: Muthoot Finance Ltd
BSE Code: 533398, NSE Code: MUTHOOTFIN
Market Cap.: Rs 71745 Cr
Book Value: Rs. 605
Segment: Non Banking Financial Company
Incorporation: 1939
Headquarters: Kochi, Kerala
