Hey @PraveenKG. I don’t actually. I used Muthoot capital services as training to understand the nbfc sector with skin in the game. The more I studied it the more I realised how inherently risky nbfcs are and I sold off a while back when covid 2.0 began and I felt my money was way too exposed. I have no regrets though since studying it made me understand the sector and what the small players are doing to survive etc and this led me to understand and invest in probably the lowest leveraged lender in the market ie ugro capital. Currently ugro capital is the only nbfc I own and considering I’m not willing to pay high book multiples for lenders it probably will be the only one I own(bajaj and muthoot finance are the best bets in this sector but considering the inherent risk in lending I don’t like paying up) . Its Lower levered, higher crar and cash, better tech, huge scope for growth, low npas… . Basically its everything Muthoot is trying to be in a few years. I suspect that this second wave will put even more pressure on Muthoot and its not cheap enough yet even now to be a survival play considering its trading above book value.
Why has the group been silent?
The Muthoot capital has seen quite a value destruction and despite all the tailwinds, and good promoters they are not able to make it a solid franchisee.
I was going through the annual report and I have two questions:
- Why has the business in FY21-22 reduced to 397 crore from 504 crores when the Auto sector has started bouncing back.
- While their interest expense is down to 150 crore yet there expenses have increased from 186 crore to 476 crore
- What is this other expense which has increased by 102%. Is it a one-time thing or what’s happening over here?
Let’s discuss this stock and see if it’s a value trap or a great opportunity to be tapped.
The stock has been making new highs on a daily basis.
Moreover, CRISIL has upgraded it to A+ from the A status.
What’s the view of other shareholders on this stock?
I think, with credit cycle going up, it should do well, but most of theor revenue is dependent on two wheeler sale. That will be the key metric to monitor.
I wanted to share some recent developments that have given me renewed hope for a particular stock. Despite previous setbacks, the management’s efforts seem to be paying off, and I’m optimistic about its future prospects. Here are the highlights:
CRISIL Ratings has upgraded the ratings on Series A1 PTCs and Series A2 PTCs issued by ‘Plutus 09 2022’ to ‘CRISIL AA+ (SO)’ and ‘CRISIL AA- (SO)’ respectively, from their previous ratings of ‘CRISIL AA (SO)’ and ‘CRISIL A+ (SO)’.
In FY23, the company’s PAT (Profit After Tax) increased to 77.92 crores, a significant improvement from the loss of 161.82 crores in FY22.
The EPS (Earnings Per Share) in FY23 stands at 47.84, a remarkable turnaround from a negative EPS of 104.53 in FY22.
The yield has maintained an average of 19% in FY23, up from 16.5% in FY22.
Considering these positive developments, I am growing increasingly hopeful about the future potential of this stock. However, I would love to hear your opinion and insights of others on this matter.
Disclaimer: Please note that I have personally invested in this stock over the past 3-4 years.
Company has been doing well, however this quarter was muted. However thr interesting thing is that the company has written back provisions worth 100 crores (market cap- 650cr) that were done in 2022 making this quarter EPS jump to 50. Shareprice currently is at 400 levels.
Waiting for their concall on 30th to ask them about it.
Disc: Invested from lower levels
how do you see the recent fund raising actions focused on EV?
I am just sharing the latest CRISIL credit ratings.
I hope you find it useful.
Not invested
dr.vikas
Found this company today. Seems to be valued very attractively at <0.7 Price to Book. Q3 performance was also strong with >800cr disbursements and company should do well as the rate cuts transmit + its credit ratings are upgraded as the impact of the loss 2-3 years back mellows down.
disc - took a position today
As per management guidance, they are targeting 4.5k cr AUM with 2.5%-2.75% RoA in FY26. That translates to a PAT of ~80-100cr conservatively.
However, I am not very clear on the ARC transactions they have done and their impact on the business. Would be obliged if someone can guide on the same and also flag any anti-thesis they might have in this business. Thanks in advance!
The management had outlined its 5 year strategy whereby it guided for its AUM to grow from 2000 cr in FY24 to 10000 cr AUM by FY29. See this excerpt from Q4 FY25 earnings call transcript. The management also guided for 4% RoA by FY29 - which translates into around 450 cr profit in FY29.
This requires AUM growth of 38% from FY25 to FY29. In FY25, they grew AUM by 50%. In FY26, however they have been hit by the microfinance crisis, and seems to have gone slower on growth - though they are still guiding for 30% growth in FY26 (In Q3 earnings call, they reiterated that the FY29 strategic goals remain intact, even though they slowed down growth temporarily in FY26).
It must be noted that Two wheeler loans is an adjacency of Microfinance loans. Typically, the woman in the household takes out a microfinance loan, while the man in the same household takes out a two wheeler loan. Households hit by microfinance crisis are finding it difficult to repay their two wheeler loans too.
The good news is that almost all banks and NBFCs are reporting big reduction in the microfinance stress in their books in Q3 FY26. Almost all of them have increased disbursement of microfinance loans in Q3. Hopefully, the microfinance crisis will be a thing of the past in one or two more quarters. Which will mean that the stress in two wheeler loans will also be a thing of the past soon.
What makes Muthoot Capital an interesting bet are the following.
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It’s trading at a market cap of 370 crores today, while guiding for 450 crore profits in FY29. If it indeed achieves its guidance, then the stock returns will be magical.
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It’s trading at 0.55x PBV - the lowest valuation among all listed NBFCs and Banks. This is deep deep value when seen from the perspective that Muthoot Capital is still reporting profits in spite of the deep microfinance crisis. Meanwhile the microfinance NBFCs and SFBs are reporting hundreds of crores of losses and still trading at 1x PBV or higher. Some like CreditAccess Grameen are even trading at 3x PBV. In fact, the markets have re-rated the microfinance NBFCs and SFBs in the last few weeks, while Muthoot Capital continues to trade at abysmal valuations - An attractive opportunity in my opinion.
If the management achieves its strategic goals of 450 cr profits by FY29, then it would be magical for shareholders. But even if it fails to achieve its goals, there is very little to lose when you buy it at 0.55x PBV