Muthoot Capital Services

Company has provided break up of its operating income into interest and non-interest income for the first time in FY 18 AR.

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Source: Company AR 2018

Non interest income of 132 Cr is significantly larger than PAT of 53 Cr for FY 18. Same story for FY 17 as well. This indicates that company charges a low interest rate to consumers and recoups costs through fees. This is common in consumer loans. However, for Muthoot Capital services, non-interest income is much larger than PAT which is a cause of concern.

Since fee income is recognized as soon as loan is disbursed while interest income is recognized over the life of the loan, a high amount of fee income will boost current PAT in a rising disbursement scenario. Company’s disbursements have gone up significantly in FY 18 and also in last 5 years.

Investors in this company, can you please comment if company has clarified this before?

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As per the latest SHP published today, Dolly Khanna seems to have bought more than 1% shares in Muthoot Capital Services…

Results declared ;

Revenue up 5% QoQ and 58% YOY
PAT up 3 times YOY but is slightly down QoQ

Is the QoQ performance the reason for sudden downfall (6%) in price after results. For these companies , should we consider YOY figures or QoQ figures for performance measurement ?

Result is good. We shall consider YoY for such companies. Low equity base, hence its prone to such moves.

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Muthoot Capital Services
Highlights of Concall
-95% of employees are back to work
-Company had arrange a Relief Camp for all and provided food n shelter
-Now All Branches are Running

  • 30% of total loan book is from Kerala but company has now added jharkhand , Assam , Andaman .Company is getting non-centric
  • 940 Cr loan book come from kerala in which 7.9% of loan is in area which is highly affected , 36% of loan book from area which has no impact , it stand to 14.5 % of loan book accross country
  • 56% of loan book come from Kochin which has no impact
  • Out of 940 Cr 68% is less than 1 year so it will get set off with Insurance Claim and out of balance 32% 50% is isured so total risk is only about 10-12% in worst case scenario
  • Out of 890 Branches only 25 branches get affected and they will be normal in some days
  • Kerala Log in last friday was 413 which was 24% of overall log in India that day
  • All dealer are back to work only 10-12 left they will also come on track in 10-12 days
  • Customers are now walking and buying vehiclw again so everything will be normal in next 30-45 days
  • On collection side company dont see a long term kind of issue . It will get solved in 45 days because Muthoot is a Household base company so customer stickyness is there and company have a personal collection team so loy of saving will be there toward paying to agency
  • NPA was 102 Cr in June and 25 Cr was from Kerala and company expect it to increase by 18-20 Cr that will be covered from other recovery . All NPA will get clear in next 1-2 quarter . Company will maintain the guidance of NPA lower than 5% for the year
  • Non South Growth was 100% and Non Kerala was 40%
  • Disbursement are more in last 5 days compare to.earlier
  • Collection cost will be increase for 1-2 month and it will be temporary
  • Already 7.5 Cr of extra provision was made in last quarter
  • In Insurance money will come to company than rest will be given to borrower
  • 50% of log in starter again and most customer are salaried so there will be not much impact
  • Peak month is now starting like Ganesh Chaturti , Navratri, Diwali , so season will be there from September to January
  • Company is in process of taking Benifit From RBI according to their Guideliness
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Muthoot Capital Services Ltd

Highlights Of Q2 & H1 Results

Financials

  • Q2 Results
    • Loan Disbursement grew by 12 % QOQ and 14 % YOY to 541 Cr
    • Loan Book grew to 2515 Cr compare to 2367 Cr last quarter and 1700 Cr last year same quarter
    • Interest Income grew to 132 Cr which is 40 % YOY and 6 % QOQ
    • Net Interest Income grew by 8 % to 93.74 Cr compare to 86.9 Cr QOQ and 46 % YOY from 64.4 Cr.
    • Operating expense grew by 12 % QOQ and 17 % YOY
    • Loan to Provision grew by 17 % QOQ to 138 Cr and double on YOY basis.
    • PAT stood at 20.1 Cr compare to 10.4 Cr last year and 15.6 Cr last quarter.
  • H1 Results
    • Loan disbursement grew by 21 % to 1027 Cr compare to last year H1
    • Loan book grew by 47 % compare to last year H1.
    • Interest cost increase by 40 % compare to last year H1.
    • Operating expense increase by 24 % compare to last year H1
    • Loan to provision increase by 61 % to 40.7 Cr compare to 16.5 % last quarter and 27 % last year same quarter.

Key Highlights

  • Reason for increasing loan provision
    • Kerala Flood
    • NPA grew to 16.5 Cr. By 2020 company will have 50 % provision to loan
  • Operating expense grew because of increase in collection cost and it is temporary and due to Onam festival additional incentives were provided to dealers.
  • OPEX cost to NIM stood at 52 % compare to 50 % last quarter and 65 % last year same quarter.
  • ROA stood at 4.1 % compare to 4.2 % last quarter and 3 % last year same quarter
  • EPS stood at 24.8 Rs compare to 12 Rs last year same quarter.
  • Liquidity Front
    • No major Issue is there because company never depend on money market or debt market .Company will beat the committed numbers on annual basis.90 % of the funding come from Bank and securitization. Money market is only 50 Cr out of total 2000 Cr borrowing.
  • Portfolio quality
    • Zero bucket collection efficiency cross 98 % was down to 93 % in September
    • Regular portfolio is back to normal and 152 Cr was the total collection in September and that is better than previous month.
  • Overall NPA come down from 6.6 % to 5.6 %because of great portfolio quality and company have various In-house collection team and agencies across the country.
  • Company has also started Data Driven Credit and Digital Driven Credit.
  • OPEX to NIM has come down drastically and company will continue to be below 50 %.
  • Regular customer in Kerala who missed the payment in August has paid in September.

Q&A

  • Growth numbers in two wheelers are stagnant in a range from 420-480 Cr . So is company is confident that it will grow in two wheeler segment because on YOY growth is declining ?
    • There were 60-80 Cr lower disbursementbecause last year it was a normal year and this year because of flood there was lower disbursement in August and September.
    • Non-south region has started growing significantly to 26 % from 15 % last year same quarter.
    • North grew by 60 % , East grew by double , West grew by 75 %.
  • What will be the impact of LTV+ Insurance in two wheeler loan ?
    • Impact will be lower to company because company operate in Tier-3 and Tier-4 cities where majorly entry level Two-wheelers are sold which are affordable.
  • What is the company coverage provision rate target ?
    • 50 % provision coverage target by 2020
  • What would be the range of interest rate in borrowing ?
    • 9.7 % to 9.75 %
  • Will the 50 Cr worth rupees of commercial paper will drawndown ?
    • Yes it will be not there because it has an expiry date of 14th December.
  • How is the bank response now after liquidity problem on borrowing ?
    • Quantum will be not challenge and banks are very positive for the sanctions that are there in the pipeline.
  • Did company put 15 % as SLR is compulsory ?
    • Yes but the delta is much high as it is in range of 8 to 8.5 %.
  • Kindly quantify the amount which is sanctioned to the company ?
    • 302 Cr
  • Kindly break the south region growth between Kerala and Non- Kerala region ?
    • In Q2 August and September , Kerala De-grow by 24 %. and over all other region grow by 26 %.
    • In H! , Kerala De-grow by 3 % and all other region grow by 40 %.
  • What will be the guidance going forward ?
    • 3100 Cr is the target for this year
  • Why is the yield falling in cost of fund ?
    • Due to increase in NPA the income that is recognized is get reversed and that income divide by the average AUM so there is reduction in yield . Otherwise company has not reduce the price.
  • Did more competition is coming to two wheeler segment because of low competition and lower tenure ?
    • 18 % of loan get sources byMuthootFincorp branches so there is low cost of distribution. Today company can launch any product with just introducing it to the mobile app. Company is the only one to make profit at bottom line constantly
    • 55-45 % will be south and other region ratios . Kerala has close to 1000 branches . So it will remain a significant contributor for the company.
  • What would be the total south India share right now ?
    • 69.9 % out of which 37 % id overall book of kerela than Tamilnadu , Karnataka , Telengana.
  • Is there any adverse impact on company because of NBFC issue ?
    • Company had never depend on money market so company will not have any major problem and company have best collection team in the Industry.
  • Who are the main bankers of company ?
    • State Bank of India , Punjab National Bank , Syndicate Bank , South Indian Bank, Canara Bank , ICICI Bank , Indian Bank , Indian Overseas Bank , Kotak Bank , HDFC Bank , Central Bank.
  • What is the expansion plan ?
    • From 2400 branches to 3000 branches and business is growing by 38 % including Kerala. 70,000 plus customers walking daily in MuthootFincorp branches
  • What will be the OPEX for next quarter ?
    • Some bit of incentive will be there but collecting cost will come down and go back to normal.
  • What will be the NIM going forward ?
    • In range of 13-14 %.
  • Any interest rate hike will be done by company ?
    • Company will be doing rate hike at appropriate time.
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Dolly Khanna has increased stake in Muthoot Capital Services in Dec quarter.

Very good Q3 results from Muthoot Capital Services.

https://www.moneycontrol.com/news/business/earnings/muthoot-cap-standalone-december-2018-net-sales-at-rs-142-24-crore-up-35-29-y-o-y-3407971.html

At the cost of sounding cliched- " This company can indeed be the next Bajaj Finance". The results have been impressive indeed considering the external environment. The company had to face natural calamity in its home state where it has the largest exposure and also face a tightening regulatory environment for NBFC’s. Despite that the asset quality has broadly held on and the company has reported highest ever top-line and bottom-line. If the company is able to do an encore in Q4, then the valuation orbit might change. In terms of evolution of the company, the company has huge operating leverage due to access to the branch network of Muthoot group and can scale up the revenue fast due to the sustained sector growth. As usual the ensuing elections season will spur the 2 wheeler sales growth and the runway looks reasonably long. As per my own calcualations and interaction with Industry folks, the company should be able to grow the topline at a cagr of 20-30% pretty comfortably over the next 3 years. Considering the operating leverage and low operational costs, the bottomline should be around Rs. 200 Crores for FY21. Is a 6000 Crore MCap Possible? Let’s wait and see how the valuation evolves for this company (Please assume that I might be completely wrong in my growth assumptions. )

Disclaimer: Hold a reasonably large allocation in my portfolio. Hence my views may be biased. Please assume that every forward looking statement of mine might not pan out as envisaged.

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CFO speaks about Q3

Numbers could have been better but we were conservative:Mr Vinod Kumar ,CFO

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Revenue and profitability down about 12% from Q3. Awaiting management commentary.

https://www.moneycontrol.com/stocks/reports/muthoot-capital-services-financial-results-forquarteryear-ended-march-31-2019-15077121.html

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Has anyone attended the AGM. Kindly share AGM notes
TIA

with around 200 cr. raised by securitizing their assets in June, does this reflect the tight liquidity of the lending market and increased borrowing costs? FY20 plans were to raise 200-400 equity to get to the 3500 cr. loan book.

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Stock is down 10-12% in last 1 week. Is it because of below news ? How feasible is this ? Closing business due to strikes.

I personally don’t think these strike can go for v long time , and employees can afford to loose there jobs. Sooner or later , they have to come to work. This can affect the stock in short term but not in long term. Stock going down due to temporary short term prob is a good thing, I remember few years back there was a strike in Maruti and stock corrected till 1200-1500 levels , in next few years it touched 8K-9K. Request people to share there views,

Disc : Invested

Both are different entities

Yes , but I read somewhere that they also use Muthoot finance branches for there business.

mothoot finance and muthoot fincorp are 2 different entities. Muthoot fincorp is not listed and muthoot capital belongs to tht group. Muthoot finance anf fincorp differentiate themselves with colour. Muthoot finance is known as muthoot red and muthoot fincorp is known as muthoot blue

Its not something new in kerala of going long strikes… Never compare with other states… Kerala & west bengal are distinct in it.

In Q1 concall management said that they got into used 4w financing also with average ticket size of 2.15L
Does anyone have information about what % of their loans are towards 4w ?