Muthoot Capital Services

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

Thanks for the clarification Hemant!

Growth story continues…

"Muthoot Capital Services has reported results for first quarter ended June 30, 2012.

On standalone basis, the company has posted a rise of 109.79% in its net profit at Rs 4.93 crore for the quarter ended June 30, 2012, as compared to Rs 2.35 crore for the same quarter in the previous year. Total income of the company has increased by 80.80% to Rs 22.04 crore for the quarter under review as compared to Rs 12.19 crore for the quarter ended June 30, 2011."

good results.

Company seems well on track to post excellent growth for fy 13.

I believe they are undervalued due to corporate governance issues. Others can throw light.

Hi Pradeep,

But nothing came out of that news abt DHFL, was there any notice by SEBI or NHB?


Excellent results. The customer base is already 1.5 lacs and well on its way to reach their target of 2 lacs.


Vinod M s

They were selling 3L shares @ 20% premium to market price. Not sure if anyone actually bought it. I don’t see such a volume jump

Yes, if some one could share the info about the transaction details it would be great. I think

they sold them in a private trade at the exchange so don’t know if it shows in the volume traded by public.

I think it was an ‘offer’ to sell to anyone who wanted to buy in bulk at that price. It was a separate window since the exchange would not have allowed it otherwise but I guess the volume should have shown like a normal block deal. It was kept on the same day as the result declaration for obvious reasons.

“The sellers would have the right to either conclude the sale to the extent it was subscribed or cancel the sale in full in the event of aggregate orders (for shares) received was less than the total number of shares offered.”

Looks like they havereceivedbids for all shares.


this is my very first response in the group and i am very much novice in stock it may not looks very meaningful to you guys [experts]. for Muthoot cap. i was comparing the quarterly PAT against same quarter last year as well Rs earned each share [ Qrtly basis against same Q last year]. Though i can see that there is substantial jump in PAT but when it comes to Rs per share, its very low.

so do you guys think that its worth to screen this data or not. as understood from abovet thread company has started coming back to track so i guess we shouldn't ignore the quarter to quarter comparision too..

Period Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10
PAT 493 627 338.81 338.14 235.42 268 232.26 250.71 215.67
% Jump in PAT 109.41% 133.96% 45.88% 34.87% 9.16%
No.of Share 9663596 9663596 9663596 9661896 4873922 4873922 4873922 4873922 4873922
EPS Per Q 5.10 6.49 3.51 3.50 4.83 5.50 4.77 5.14 4.42
% jump in EPS 5.62% 18.00% -26.43% -31.96% 9.16%

would be great if someone could enlighten me on this :) ..thanks


You have to take into account increased number of shares after the rights issue to calculate the EPS for q1 fy 13. this is the reason why even though profits increased EPS looks almost stagnant.

Ideal situation for finance companies is to dilute stake at multiple times book value. e.g I hear yes bank wants someone to take stake at around 3 to 3.5 times book value (current book value at 140). Muthoot capital did exactly reverse. they diluted close to book value by offering rights issue. I guess they probably suffered from lower popularity in the markets.

Still I feel if they can continue with their growth path, and keep on increasing dividends, cmp of around 75 after the recent correction looks quite juicy.

All of this is provided there are no **“cockroaches” **in their books.

These are the kind of situations where there is a sharp risk reward trade off. If things come off for muthoot in terms of growth and dividend keeps on getting increased, this could provide great returns. If there is something hidden we dont know, downside could also be huge.

My view is that one should not allocate more than 10% of the portfolio in such stocks even in an aggressive portfolio composed of mid and small caps.


Came across this

Could be the reason for low valuation inspite of the stellar Q-1 results. This will increase their cost of funds unless banks have a different opinion from Crisil.

Vinod M S

Disl: I continue to hold this stock and will form around 5-7% of my portfolio.

From the basic discussions here and the nos, liked this co and I think we should discuss more on it.

It is growing at more than 50 % at a time when two wheeler sales are decreasing, the management looks good , It’s available at 5 % dividend yield at cmp as they will give dividend of Rs 4 this year . Someone from kerala can throw more light on this stock. PE will expand as the profits will increase. They are yet to expand in north most of the business is in Kerala and other southern states.

Disclosure : Invested

This stock looks quite interesting…did a brief post today at my blog:

Muthoot Capital:Muthoot Capital is a part of the famous Muthoot group but they arenot into gold loan financing. They are aNBFC with focus on lending to two wheelers, three wheelers and light commercial vehicles sector. The company has a small base as of now and is growing very aggressively at a CAGR of 54% over last 5 years. Currently their asset under management (AUM) is about 300 Cr and they plan to quickly more than double the asset size to 700 Cr by the end of FY13.

We feel that the valuations are attractive considering the quick growth prospects in the company and the brand value of this group. At CMP of 82, the fundamentals are:

  • Co has grown its topline at a CAGR of 54% over last 5 years and net profits have grown at a CAGR of 50% over last 5 years
  • Stock is trading at 5.5 PE multiple and 1.1 time Book Value
  • Company has been liberal in dividend payout and the stock provides a dividend yield of 4.3%
  • Company had come out with a rights issue at Rs 80 last year in the ratio of 1:1.

Quite excited by this stock.

Risks first:

a) To maintain the scorching pace of growth, it is in ever-need of funds. Since it doesn’t take deposits, it has to depend on Banks for WC and/or equity dilution (through warrants or rights issue). So far, the major burden has been taken by banks who have financed close to Rs.200 cr while the equity & reserves & rights issue & promoter loans have taken up the balance Rs.100 cr. In case of any funding drying up, this one would fall flat on its face.

b) The WC provided by banks is against the receivables and personal guarantee of the promoters. Any significant increase in NPA will put off the Banks and may lead to cash flow problems (ok, in banking terms, this is the classic borrow short-lend long problem which needs to be managed extremely carefully).

c) In my opinion, we need to evaluate the numbers only for the past 2 years since the loan profile (and the entire business) has changed in the past 2 years. Before that, majority was gold loan financing. Therefore, although we can believe that promoters have great experience in lending, relating to numbers beyond the past 2 years is pretty fruitless.

d) Read through the rights offer document (, please refer to risks 10, 11, 12 and 37. The company has the habit of ‘missing’ documents (important or otherwise and as recent as 2005).

e) Disclosures not clear, in terms of NPAs, provisioning, NIMs etc., like atleast a mid-cap NBFC.

Now to the positives:

a) The stock is quite cheap. Although I generally dislike doing EPS estimates, since the management has walked the talk over the past 4 years (I could access only past 4 ARs), let us reasonably guess that they are going to hit their targets again. Given this scenario, I estimate Revenues for FY13 to be Rs. 121 cr (22cr+26.5cr+30.1cr+42.5cr in each of the 4 quarters). Estimating a net profit margin of 22% (it fluctuates widely between 19% and 27% across quarters), the profit comes to Rs. 26cr. That is, the stock is currently available at a 4x FY13E. Assuming a minimum of 20% dividend payout (Rs.4 per share), it is quoting at 0.95x P/B FY13E. For a stock which has had a RoE of 33% in the past and now 17%-18% (due to rights issue), it should ideally quote around 2x P/B (assuming AAA bond yield 9%). Since it’s a small cap, at the very minimum, it should quote at 1.5x P/B.

b) NPA figures are mentioned in the ARs, although very neatly tucked in. For the year 2011-12, Gross NPAs were 78.23L and net NPAs were 40.42L. Again, let’s dig a bit of history. The NPA figures in the past were as follows

Year 2009 2010 2011 2012

Net Advances(cr) 68.86 100 174.65 288

Net NPA(in lakhs) 52.56 60.7 89.44 40.42

Net NPA (%) 0.78% 0.65% 0.51% 0.27%

As can be seen, NPAs are kept at a bare minimum, indicating the strength and quality of management (numbers seem true, especially because they pay a generous dividend).

c) They are in the business of lending to two- and three-wheelers, low ticket size loans which are usually not affected by the global slowdown as such. In essence, the business is seasonal but not cyclical. Also, growth has been scorching and they are expanding to other geographies pretty rapidly.


The stock is quite cheap on almost all parameters and is surprising that it is still quoting at these levels, most probably because of the overhang of the Muthoot group (which in my opinion is not too bad. Just a case of…just in case RBI does something etc.).

The other factor that needs to be considered is the equity dilution part. Again, first principles. CAR (capital adequacy ratio) has to be maintained at 15%. As of 31st March 2012, CAR is at 29% (esp due to the rights issue). If Muthoot Capital maintains its scorching pace of growth, the advances may hit 500 cr by 1st/2nd quarter of FY13, bringing the CAR to 20% (assuming the above profits calculated materialize). In essence, you are looking at some sort of equity dilution again in 2013-14 either as rights issue/warrants unless of course RBI permits these folks to do a NCD issue (which I doubt, due to the small-cap status).

Net-net, scorching growth, cheap stock, great dividend yield are the positives. Equity dilution, possibility of a negative black swan (always a risk with banking/fin. cos.) are the risks which leads to a portfolio allocation of not more than 5-10% (10% for the risk takers) on this stock.

Hi Ayush,

Why not look at far larger and safer muthoot finance instead?

It is quoting at p/b of 1.6 times delivering similar ROE



thanks kiran for the excellent summing up. always admire people who make an effort to dig deep and and then filter all the relevant details for the other folks. great work.

+1 to what Hitesh Bhai mentioned…excellent analysis Kiran!

Yes, I saw the NPA figures, but it does not mean much for a loan book of this size and that too just 2 years old in auto finance.

Tried contacting the management, but there is no response. I am interested to know their lending normsand risks they take - what is the loan to value ratio, tenure and loss on sale after reposessing. Banks had burned their fingers in 2 wheeler loans in 2003-06 period and many went slow in this segment afterwards. For example Indusind Bank has a gross NPA of 3.5% on 2 wheeler loans compared to 0.95% for small CV and 1% for CV.

They have NCDs with maturity of 1 to 5.5 yrs from today, but those are not public NCDs. Raising funds at manageable cost is the major challenge in front of the com. Did you see the cirisil link posted in my previous post?

Hopefully the next AR will throw some light into most aspects that are not clear now. Will keep allocation below 10% till then.



Business model: Borrow funds at 12%, lends it around 24-25% for two and three wheeler finance to people who have difficult in getting loans from banks and earns pre-tax spread of 9-10% and post tax spread of around 6-7%. On current leverage of around 4x, it earns ROE of around 26%. Banks generally lends two wheeler loans @ 13-15% but Muthoot Capital is able to charge 24-25%, as it lends to people who may otherwise not get loan from banks.

Letâs see some historical numbers as % of advances







Interest income % of advances







Employee exp % of advances







Operating exp of advances







Other exp % of advances







Total expenes as % of advances







Net spread (EBIT/advances)







Interest expenses % of advances







Net spread (PBT/advances)







Net spread after tax @33%







Leverage( Average AuM/avg equity)






























Secured loan








Interest as % of loan







Financial Concerns/Risks:

1) Total expenses (other than int) has increased from 5-6% of advances during 2008-11 to 10% of advances in FY12. This is mainly lead by increase in employee expenses which increased from 2.5% in FY10 to 7% in FY12.

2) During FY13, company targets to disburse around 200cr of three wheeler loans i.e 30% of the total target amount of 690 cr. I think that three wheeler loan will be more risky and prone to more defaults because of the profile of borrowers.

3) Re-financing risk: More than 90% of loans of the company are short term loan (repayable in less than a year). Now from financial management perpective, this is perfect as company has receivable of almost equivalent amount (80%) which are receivable in less than a year. But this does pose re-financing risk where company has problem in recovering its dues and banks refuse to renew the loans like in the case of credit crisis of 2008.

Concerns on management:

1) For more than three and half years trading of securities was suspended due to non-payment of listing fee (February 05, 2001 to September 17, 2004). For me, this is a gross misconduct by promoters and an easy way to temporary de-list the company.

2) Company stopped gold loan business around August 2011, saying that its flagship company will concentrate on gold loan business and the listed entity will concentrate on vehicle loan. To be fair, company has indicated in the FY2011 annual report that by end of the year gold loan will be less than 2% of AUM. In a way this equivalent to transferring gold loan business to a promoter entity without any consideration. Company had around 60 cr of gold loan in 2009 and even by 2011 it had around 40crs of gold loan. Strangely in its rights issue which came around July 2011, nowhere company mentioned that it intends to stop gold loan business. How should we be sure that such things will not happen in future?

Reasons to buy

1) Aggressive growth in auto loans, which have increased from low base of 10crs in in 2009 to 130 crs by 2011 and then double to 260 crs by 2012. For FY13 mgt have target to almost double it. Even then debt equity at 4.5x is reasonable for NBFC.

2) Gross NPA is equal to or less than a crore for last two financial years.

3) Through rights issue, company has infused around 60 crs of fresh equity out of which 40crs contributed by promoters themselves. This shows the confidence of management, as rights issue was for the sole purpose of retiring loan from promoters.

4) A significant portion of the operations of the Company are carried out from rural and semi urban areas. The Company plays an important role in providing credit to the unorganized sector and small consumers at the local level. âTwo main products of the Company, namely gold loans and auto loans, fulfil the credit demands from individuals and the unorganised not normally serviced by commercial banks.â

5) Dividend payout ratio maintained above 20% for last five years and dividend has increased at a CAGR of 24%. Currently it provides dividend yield of around 4%.

Conclusion: I think this is a stock where we need to closely monitor the amount of leverage, NPAs and the growth. Generally I donât like to invest in NBFCs or banks because of leverage, but making an exception to this company as currently this company leverage is quite low for an NBFC and there is enough scope to increase AuM without diluting equity. Current capital adequacy ratio of the company is around 30% and if it is able to achieve its goal of AuM of 690 crs, capital adequacy ratio will decline to around 16% (Minimum capital adequacy ratio as per RBI is around 15%, I guess). Took a small position recently.