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ICICI Securities Report
In our view, Muthoot Finance Ltd.'s and Manappuram Finance Ltd.'s businesses are likely to continue with own-book lending (against co-lending practices started by some peers) and prefer the high yield/low ticket size buckets compared to low yields as seen in FY22.
This is irrespective of demand recovery or improvement in competitive intensity. We present comparative arguments for these strategies below.
In FY22, there was not only higher competition but also lower demand for gold loan in low ticket size segment (this was underappreciated). This resulted in Muthoot, Manappuram to make changes in yields and ticket sizes in terms of target segments. For example, Muthoot, Manappuram's yield to assets under management declined to 19.5%/21% in FY22 from 21.7%/25.6% in FY21, respectively.
Expect opex ratio to moderate. This is especially applicable for Manappuram as its ‘opex to AUM' ratio jumped to 6.3% in FY22 from 5.4% in FY21. Covid made gold loan space extremely competitive as it was looked as a relatively safer asset class. Hence, to compete, Manappuram hired more employees, increased salaries to incentivise employees and spent on advertisement etc.
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