I have exited completely from this stock. No response from the management regarding queries… from whatever research done it looks like the com is riding on the fincorp branches till they can. I think there are regulatory risks here with RBI tightening its checks on gold fin cos (have a look at manappuram results and management interview).
I did take a look at company’s numbers and here is my take on the company:
The company is into 2 and 3 wheeler financing withratio of advances between the two- and three-wheelers being 63:37 as on September 30, 2012 (CRISIL report). I think the good part of the company is the stupendous growth over the past 2 years. There are inherent risks in the business as a result of which not many banks and other NBFCs focus on it (I myself wanted to buy a 2 wheeler and couldn’t find any of the banks/NBFCs offering attractive rates). The rates charged by most banks and NBFC is more than 15 - 18 per cent primarily because of low ticket size compared to 4 wheeler or housing loans leading to high administrative costs per loan and high NPAs. I think one of the major issues with this segment is low resale value compared to cars. One other issue with the company is corporate governance. The disclosures in the quarterly results like NPAs is inadequate. Also, the RBI overhang on the group company (Muthoot Estate Investments) is a bit of concern. The other issue with the company is aggressive growth expectations. I have seen even an experienced promoter like Temasek (sovereign fund of Singapore) making a mess of Fullerton India (hope you guys remember about it). So delinquencies would have to be monitored on a regular basis. Also, the disclosures will increase once the new NBFC guidelines which came up today are implemented
However, who thought that a risky business of financing second hand CVs would make Shriram Transport a ~23,000 crore market cap company. What makes Shriram different is its collection processes and understanding of the business. I think this is true for Muthoot also since its a high riskbusiness. The good thing about the company is the growth that can be expected in next few years.
Why has the stock moved so much in the past 5 trading session? Its up by more than 10 per cent today… The RBI recommendation on increasing LTV for gold loan NBFCs will benefit its sister company, Muthoot Fincorp and not Muthoot Capital… (eagerly waiting to enter the stock at corrections but thats not happening)
Dear All, What is the take on Muthoot Capital Services currently? At CMP of Rs 93, the stock has a market cap of about 116Cr, book value at end of FY13 should be approx 110Cr and FY13 PAT should be about 20Cr. At 1.1x P/B and
Company is operating in a space wherein it is clearing facing headwinds due to slowdown in disbursments and also less tractions in states like Maharashtra, Karnataka.
My sense is that in NBFC’s which are in expansion mode it is best to enter at discount to P/B ( which intially was the hypothesis) here, which automatically then gives u cushion against non-performace for few quarters.
This company has always exceeded my expectations in growth in spite of very tough environment in the segment. Revenues grew over 50%. PAT about 20%. Employee costs doubled. Administrative & others (???) increased about 50%. Still very satisfied.
No details about AUM and segment/region wise breakup.
At CMP of 83, the stock is 4.5x P/E and 0.9x P/B, as Ayush mentioned elsewhere. The valuation appears quite compelling, accounting for the scale discount- wanted to check with the broader group whether we agree that this is mispriced or there are some risks to watch out for.
Apart from the above fundamentals, it looks like it has formed a classic cup and handle pattern. It is correct to believe so? Please advice/comment on the attached pattern.
Its amazing how a company we all thought is not providing enough information to investors has turned out to be just the opposite. The stock story is very well written and has lots of insights.
I am generally positive about the investment worthiness of MCS, but here are some concerns which immediately come out:
The comparison of gross NPA b/w peers is not fair as others have different standards of accounting for NPA. Bajaj Finance follows a 90 days NPA recognition, SCUF 150 days and MCS 180 days. If MCS were to account for 90 days then their NPA figures would have been different. But never-the-less the figures are still admirable when you consider the yield they get.
The reason for lower NPAs in a sector where Banks failed to keep the NPAs in check is the labor intensive nature of the business model. Hence we can argue that lower NPA cost has given way to higher operating costs. The C/I ratio is worst for MCS.
In Kerala the unique positioning of MCS is very clear - banks cannot match their flexible installment payment and credit appraisal mechanisms. But in AP, TN, KA the competitors are not just banks and they can compete/are already competing with similar business models - SCUF, Chola etc.
Sometime back when other seniors like Hitesh and Ayush were showing interest, you were negative on this stock. What changed your mind to have a second look ?