Muthoot Capital Services

This company is one among the 12 companies in India managed to grow at least by 15% every quarter for last 5 years.

Muthoot Capital Services belongs to Muthoot Pappachan Group, which is a well established business group in Kerala. They were into gold loan business until last year, now they have shifted focus to two and three wheeler financing. They have plans to enter tractor financing also. Already the company has presence in all southern states, now expanding to Gujarat and Maharashtra. They had 300Cr AUM in FY12, and targeting 690Cr by end of FY13. The total customer base was 2 lakhs in FY12, and targeting to add 1.5lakhs in FY13.




















5 years avg topline growth (CAGR) > 50%

5 years avg bottomline growth (CAGR) > 40%

ROCE ~ 15, ROE > 30, PE =6.3, PB = 1.18, CMP = 78

Promoter holding > 77%

Negatives - ??? I am not an expert in stock analysis.

I am not sure if the current valuations are low and if the company deserves PE re-rating. But even if there is appreciation only via EPS growth, a decent return can be expected in medium term if they can continue this performance, right ?

Views invited, if anybody has interest & time to look into this scrip.

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Net profit margins are in 20% plus range since past 8 quarter that I can see.

last year they had done rights issue at a price of Rs 80 per share. cmp also is hovering around the same levels.

div declared for fy 12 at 3.50 per share which at cmp gives div yield of around 4.5% dividend has been increasing consistently over the past few years and from 07, when it was rs 1.2, followed in subsequent years as 1.5, 2, 2.5, 3 and now for fy 12 3.5 rs per share. if the same thing goes on then this could be a great dividend yield play two years down the line.

fy 12 eps is around 13.12 on expanded equity post rights issue. Book value is around 70 per share.

I think the stock is hovering in this range of P/BV and PE due to small cap status plus maybe market misconception that it is a gold loan company.

I think its an idea which needs further looking into.


This one is looking interesting to me. Muthoot group has a wider footprint in NBFC and Muthoot capital is the only Muthoot company into asset loaning, will update here as and when I learn about this.

previously Hitesh Patel wrote:


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the big negative i see due to the big equity dilution is that the ROE which was in the range of 35-38 levels is going to come down to 20s.

But I guess even with these negatives the price seems attractive. And if the company can ramp up the vehicle financing and tractor financing business, it could be great for shareholders.

Anyone can throw some light on the NPA levels of the company?

Company is mostly into two and three wheeler segment financing.

and now a big chunk of business is from the above segments. Gold loans are hardly 1-2% of the overall business.

Interesting thing I came across is that the company facilitates payment of instalments at any muthoot fincorp branch (which is well spread out in terms of geography).

Hitesh, in the latest annual report, there is a mention of provisions for writeoffs, its about Rs1.1 cr, I compared it with AUM(Rs 298 cr) its turns out to be about 0.35~, its gone up a little compared to last year.

Regarding using Muthoot Fincorp facilities, somewhere I read that they will use exstisting Muthoot fincorp offices to expand Muthoot Capital business. It will keep their cost very low.

I am kind of researching still, will update here once I am done, but their ROA looked phenomenal

Thank you for bringing up this Idea Vinod!

Here is my view after the initial research.

There are two rival Muthoot groups â George group which has Muthoot Finance, the listed gold-loan com and Papachan group which has Muthoot Fincorp (unlisted)and our candidate Muthoot Cap Services.

From what I hear, Muthoot Fincorp is a well run com with very aggressive management and professional practices. They already have 2500 offices without any major presence outside South India! The com is into gold loan, currency exch etc.

Muthoot Cap Ser (MCS henceforth) is an auto loan com with 98% portfolio consisting of auto loans (could we then use Shriram Transport as a comparable?). 3-wheeler segment registered a 190% growth last FY owing to low base and represents an attractive opportunity. As Hitesh pointed out leveraging on Fincorpâs huge network will be a great strategy for MCS.

Pls help me understand the foll:

  1. The proceeds from last yearâs rights issue was used up mostly to repay loan from the promoter. Is this good or bad?

  2. Promoter share has increased by 2.5% last year. Is this due to the rights issues?

I too could not find out the gross NPA figures. Quite conspicuous by its absence in the Management discussion esp for a finance com. This is a key item to be monitored.

The com plans huge growth in FY 13 â doubling no of customers and increasing Asset base 2.3 times! How will they grow so much considering the subdued sales growth in 2 wheelers? Garnering more market share in the new areas or are we seeing a new segment being created (low income group who funded 2 wheeler purchases thru other means)? The daily/weekly installment payment option and huge network points to the latter strategy.

The management looks capable, will be interesting to see if they can replicate their success in other locations.

The com is completely ignored by the institutions/analysts inspite of having a great nos for 5 years - a very good sign as per Lynch.

I am glued in and awaiting more inputs.


Vinod M S

Gentlemen, there is something like “provisions for writeoffs” in annual report,

this is its about Rs1.2Cr, last year it was ~Rs0.5 Cr, is this NPA?

Hi Mahesh,

NPA is not provisioning.Provision isthe amount set asideto take care of bad loans. Gross NPA - provision will give net NPA. Gross NPA is the % of asset base that is classified as non-performing as per the nroms.

I’ll check on this further



Management looks “gung ho” about its groeth, targeting a AUM of 1000Cr, AUM for 2011-12 was about 300Cr. Are considering loans against gold ETF. Very high ROA.

Vinod MS, please share if you know the scale of opportunity, especially, their 2 wheeler and 3 wheeler loans, does any other NBFC lend in this segment already in other parts of India? or Muthoot Capital can expand quickly in other states?


Players like Shriram Transport Finance (STF), Mahindra finance, Magma are also in the same segment. Some of the banks are also present in this segment.

As I understand, the segment is mature. STF found a niche in truck finance/ financing second hand vehicles etc. It built a good value proposition and targeted an unbanked market and thus was able to reap benefits.

From the numbers it appears, Muthoot has been doing well. Since its size is small, growth must be achievable.

However I had heard from a bank employee that, the fraud / loss in the vehicle loans are a bit high.

I would like to clarify one point raised above on Muthoot

)- The promoters stake increased due to rights issue ( some shareholders have not subscribed to the issue). If you look at it 75%+ of the funds has come from promoters and the debentures of the promoters have been repaid.

One reason could be - Company’s growth in banking and NBFC is limited by the the Tier 1 capital. Equity forms tier 1 capital and this provides room to grow the loan asset ( and the business).

I do not see this as a negative


Muthoot growth since past few years has been impressive.

current div yield (stock went ex div) also is good and what is even better is that dividend has been consistently raised in line with increased earnings.

Since the base is small, the company can show real good growth for next 2-3 years.

Sector that the company operates in is currently out of favor due to CV slowdown, but it seems the two and three wheelers may not be affected to the extent of four wheelers and that is where muthoot operates.

valuations whichever way one looks at seems attractive-- PE of around 6, P/BV at close to 1 and div yield of 4% plus.

I feel from current levels risk reward is quite favorable and have initiated a starter position in this one.

Hi Hitesh,

I too took a starter position, but have the foll worries:

  1. Gross NPA is not mentioned - since they seem to target the low income group and growth can be acheived only my increasing no of customers (low ticket size loans, hence no of loans managed will be higher than other players) this is critical.

  2. I am not sure if using Muthoot Fincorp offices for collection/origination of loans will go down well with the regulators. There was mess when RBI found out how Manappuram was using the listed entities offices for deposit activities of a group com. Need to find out if there is a formal contract b/w the 2 cos for this arrangement.

  3. Unlike gold loan wherein the security is in your locker, the 2 wheeler and three wheelers will be much for difficult to securitise in case of a default.

Mahesh, growth potential is huge if they execute well in other locations. Since Fincorp expansion seems to be going strong in non-south regions, they might be able to pull this off too. This business has some similarity to urban microfinance owing to the segment, loan size and higher interest rate. NBFCs focussed in a particular segment can garner a lion’s share of the market if managed well - look how HDFC and LICHF are sucessfully competing with Banks which are into multiple products and services.

I am keenly awaiting Donald’s views.



I am waiting for Donald’s views as well as the updates on the company meets done recently!

:slight_smile: Yes Hemant, all of us are. This time there is marathon of com visits, what a great job he is doing! Need to login every hour to check for updates :slight_smile:

Thank you gentlemen, I have also taken an starter position, would like to gradually increase it to 15-20% of my portfolio.

Hi Nadakarni,

Do you have more details on competitors. Shriram Transport is not into 2 wheeler loans.

Mahindra Financehad PAT 40 times that of MCS in FY 12 and AUM is 20,000 Cr compared to 296 Cr of MCS.But the share of 2/3 wheeler loans is less than 5%, so the disbursement in 2012-13could be similar to that of MCS in that segment. The P/E of both these large cos are almost double of that of MCS and deservingly so.

I dont know if there is any other NBFC focusing on 2/3 wheeler finance. Probably its too much of a hassle for them. Shriram has a branch network of 500 and Mahindra 600. Muthoot Fincorp has 2500 branches (need to confirm if that can be exploited without regulatory hurdles). Interestingly Mahindra has started looking at gold loans as a growth driver.

Both Mahindra and Shriram have non-performing-loans of 3% at the gross levels. That is much higher than HDFC Ltd (home loans), but probably the higher interest rates compensate for this.

The fact is that we have very little track record of MCS in the 2-3 wheeler segment they are focusing. The nos say very little. Gradual buildup over a year would be better. Lets see how they progress in their FY-13 goal of doubling the number of customers to 2 lacs and increasing asset base 2.3 times.



Promoters are selling stake, may not be a concern, size is quite significant though, does it suggest something?

Promoters hold 77.48% in the company at the moment and doing this sale to reduce it to below 75% as per sebi guidelines. Link:


Anyone looked at Dewan Housing Finance ltd? P/E is 5.5, P/B is 0.8. EPS has doubled in last 4 years. Just wondering how MCS would offer better value than this.