Shares of gold lending provider Muthoot Finance fall 15%; lackluster short-term outlook

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Shares in gold loan provider Muthoot Finance Ltd. were hammered Tuesday, in response to the non-banking financial company’s dismal results in the first quarter of FY23.

The stock fell nearly 15% on the National Stock Exchange in early trades. Among the major disappointments was a 17.4% drop in net profit year-on-year due to weakness in its core gold lending business. The gold loans segment contributes more than 90% to its overall assets under management (AUM). Sequentially, its clientele also declined. Teaser loans weighed on the company’s returns during the quarter. A teaser loan offers lower interest rates for a fixed term.

Despite a lackluster first quarter, the company’s management maintained its AUM growth forecast of 10-15% for FY23. On a post-earnings conference call, management said that it expects the AUM on gold loans to start improving over the next few quarters. Additionally, Muthoot Finance has received approval from the Reserve Bank of India for 150 new branches, which will open by October, which is expected to help AUM gold grow, he said.

Even so, analysts are wary of the company’s near-term performance. “We expect earnings pressure from Muthoot to continue for another quarter,” analysts at Kotak Institutional Equities said. The national brokerage said it would monitor the immediate impact of the removal of the teaser system on gold loan growth. The concern here is whether the company will be able to retain customers acquired through the teaser loan program, after removing said rates.

“Even if we build sequential positive growth rates in the remaining quarters of FY23, we believe annual growth will likely be at the lower end of management’s forecast,” Nirmal Bang Institutional Equities analysts said. . Net new customer acquisition will be a controllable key in the coming quarters and also the most critical determinant of the company’s gold loan growth trajectory, it said in a report.

On the positive side, there are favorable winds for the company’s growth, such as rising gold prices in the domestic market and the addition of new branches. But their benefits would trickle down only gradually.

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