Muthoot Finance Q3 Results Review - Worst Is Behind; Growth To Bounce Back From Next Quarter: Systematix

Systematix Research Report

Muthoot Finance Ltd.’s Q3 FY23 operating performance was marginally ahead of estimates, with net interest income/operating profit at Rs 17.0 billion/12.6 billion versus estimate of Rs 16.6 billion/ 12.3 billion, largely led by a sharp 82 basis points QoQ expansion in net interest margin to 11.9% (versus expectation of 11.3%), even as gold assets under management growth was muted at 1% QoQ.

While disbursement growth in gold portfolio was at 17% QoQ, it didn’t translated into increased AUM growth due to higher repayments. While gross / net stage-III assets increased to 2.6%/2.3% from 1.7%/1.5% in Q2, do not see it as a concern, given higher gold prices.

We estimate 10% compound annual growth rate in Muthoot Finance’s AUM over FY23-25 would help the company in delivering 16% CAGR in earnings over FY23‐25E.

Rebound in AUM growth coupled with rise in yields and operating leverage to cause its return on asset/return on equity to improve to 5.7%/ 18% by FY25E from 4.9%/ ~17.8% in FY23E, respectively.

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