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Yes Securities Report
Improved trends in customer growth/metrics without reduction in yield and with augmented focus on marketing/outreach could imply better growth and profitability outcomes, thus providing a credible reason for valuation re-rating of Muthoot Finance Ltd. and Manappuram Finance Ltd.
While commentary from both the managements about receding of competition from banks is difficult to eschew, the trend reversal in customer base growth during Q4 FY23 and ground checks are hinting towards improved trends in incremental market share.
Gold loan portfolio at Muthoot and Manappuram grew at similar or higher rate than many of the banks in Q4 FY23.
The real measure of structural growth would become clear when gold price stabilises for a long period of time (Q1 FY24 will have value growth). While formalisation of gold loans remains a structural trend, the market position of gold non-banking financial companies along and their return on equities would be closely monitored.
At present, both growth and RoE seems to have likely hit the trough and are undergoing some reversal. This may not only translate into earnings upgrade but also underpin valuation re-rating, as most investors are expecting either growth or RoE recovery.
Muthoot Finance - likelihood of 4-6% QoQ growth in gold loans in Q1 FY24
Muthoot witnessed a near 2% QoQ growth in customer base in Q4 FY23 along with firm portfolio yield, after experiencing a 3.5% decline in customers over preceding five quarters along with significant erosion of yield. In the latest quarter, there was improvement in customer acquisition (up 8% QoQ), customer reactivation (up 5% QoQ), customer attrition (down 4% QoQ) and customer engagement (additional collateral to existing borrowers - up 2% QoQ).
The tonnage growth in FY22 was driven by significant dropping of yield (gold prices were even through the year), and it came on a flat customer base. Now the customer mix (high value versus low value) has stabilized, reflected in reversal of average pledge/customer to before the teaser rate period. Thus, tonnage growth should henceforth move largely in-line with customer growth.
Manappuram Finance - likelihood of 2-4% QoQ growth in gold loans in Q1 FY24
Manappuram's customer base grew 2% QoQ in Q4 FY23 after declining significantly in preceding two years. While portfolio yield came-off in Q4 FY23, the management attributed it to portfolio shift to six million loans from three million loans (resulting in lower fees, charges and penal int. income), and not due to reduction in product yields.
Over the past couple of quarters, Manappuram has witnessed an acceleration in new customer acquisition (particularly low-value customers). Management expects gradual growth is customer base to continue and an improvement in portfolio yield (portfolio pricing has improved marginally from April).
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