Ukraine Russia war event is almost over, unless more countries decided to get into the war. Gold has peaked for 2022 at least, IMO. Mostly headed to 1680 USD.
https://www.icra.in/Rationale/ShowRationaleReport/?Id=113059
-Great company
-May go in a consolidation phase after severe down phase
- inexpensive valuations PB 2.2 and PE 10
If banks don’t withdraw from Gold loan sector this cheap can become cheaper. It’s wise to be cautious in a company that’s being disrupted. Here banks are the disruptors. Better to wait and watch where the competitive intensity goes.
Technically also pointing the same. Already entered stage 4 on weekly chart. Below 30WMA line and taken support at 200 WMA line.
Disclosure: Invested in past and exited.
do you think the another disruptor could be IIFL finance along with banks .IIFL is taking market share from both manappuram and muthoot
Must read about why bank has gone aggresive for gold loans.
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iifl is taking market share from manappuram finance mainly. bcz of iifl manappuram has to lower the yield to grow loan book. i think iifl is doing colending with banks for disbursing gold loan (not sure)
I ran a regression of Muthoot Finance’s Revenues to the Gold Prices (per g). I took the quarterly revenues and gold prices from June 2011 to March 2022. The R-Squared is 88.15% which means gold prices do affect Muthoot Finance’s Revenues. I came up with a conclusion that every rupee increase in Gold Price (per gram) will result in Rs. 7.05 increase in Muthoot Finance’s Revenues. Look at the numbers and relationship chart below:
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This is because as gold prices increases, obviously the amount of loan they can disburse also increases.
It is coming on track. Recovered a bit in last 2 weeks.
Why does Muthoot Finance trade at such low PE? 10 years median is 11.5, and 5 years median is 13.
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Because the business gets threatened when gold prices fall.
Fundamental speaking the business is rock solid.
Their NIM are a double digit, on a secured book. That is absolutely unheard of in the lending space.
Corporate Governance is great, no red flags there.
Just a little headwinds due to FED rate hikes, but that will soon be past.
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Gold business volumes are high when gold prices are high and less when prices are low. Hence the stock price correction.
Sorry didn’t follow up on this. But gold price do not fluctuate much and in the long run gold price will increase.
Their 5 yr revenue growth is 14% and profit growth 27% which shows it is quite resilient to it. Am I missing something?
Please correct me where I am going wrong. Thankyou in advance.
But when they fall, and before they go back up… the risk is high… Why…
RBI allows 91% disbursal, but they give only 75%.
The company as a 25% policy buffer. As this buffer gets exhausted, risk increases. Take the recent case, the fall is round 18%, risk is alarming.
What if it fell another 18%?
Muthoot would have a very hard time recovering!
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I think it’s trading at cheap valuation because of intense competition from the banks which can be visible at slow growth rate of loan book for players like muthoot and manappuram. So it’s market’s perception that going ahead growth will be very slow.hence the multiple derating
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Banks are not exactly a competition.
Sbi interest rate is 7%
Muthoot is 12%
The customer base is different.
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But that’s the market’s perception (including me) which might be wrong though. Just like Krsnaa diagonistics is down more than 50% on the anticipation of Increasing competition but the truth is Krsnaa operates in ppp model where no other competetion comes even close to them.
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Just a query…Generally everybody says that in the long run, Share Price should follow the earnings. If that is so, Muthoot Net profit CAGR for 10 years is 16% while its share price CAGR for 10 years is 24 %…Now since the business is stable and secure, may be 2% difference is understandable but why 8% difference??
similarly for Pidilite, 10 years Profit CAGR is 14% while 10 years CAGR for share price is 30%…Why so much anamoly? or I am missing something…same is the case with Nestle.
In muthoot case, is it reverting to mean? And if so, does it mean that even pidilite and nestle will also revert to mean in near future?
At the end of the day both stocks Manappuram and Muthoot are falling due to FII selling. If you check the SHP, its clearly evident. They have booked their profits.