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Key Highlights

  • Stock trades near life time high; gains 600% since listing
  • Gold loans main option for borrowers in such challenging times
  • Management looking to grow the gold loan business by around 15% in FY21  

Mumbai: Despite the volatility in the market, Muthoot Finance is one stock that has been able to hold out in terms of the upward rally of its stock performance. Currently trading near lifetime high, the stock ever since its listing in 2011 has delivered 600% returns to its shareholders with promise to continue with the upward momentum going forward.

Why at a time when the other NBFC players are struggling to grow and sustain, what’s aiding this move in stock? Well the answer lies in the business that the company does…..GOLD LOANS!. At a time when lenders are risk averse in order to protect their balance sheets, gold loans happen to be the main option for the borrowers in such challenging times. As a result, the company has been witnessing high consumer demand for gold loans particularly from traders, small shops & industries. MSME at such times requires quick money to restart their business and a gold loan proves to be a solution to meeting temporary working capital needs. All this was reflected in the strong fourth quarterly performance reported by the company. Muthoot Finance witnessed best loan growth in the last 4.5 years with loan growth at 22% YoY & 8% QoQ.

The valuation of the company has zoomed in the last five years from 2x P/BV to nearly 4x P/BV indicating the confidence of the market participants on the underlying fundamentals of the company. Most analysts tracking the stock hold a bullish view; almost 93% of them have a BUY rating on the stock.

George Alexander Muthoot, MD of Muthoot Finance, in his interaction with ET NOW mentioned that despite a higher base they are still looking to grow the gold loan business by almost 15% in FY21 and expect an increase in disbursements as the economic activity picks up. At a time when NBFCs are cautious of the growth outlook the management of Muthoot Finance is confident of recovering the business lost in April and May due to lockdown by June end, indicating their optimism for demand going ahead. He further added that business & collections were significantly impacted in April due to Covid-19 led lockdown but the situation displayed signs of normalcy from June onward with an increase in loan enquiries and disbursals. However, the company plans to go slow on the subsidiary business with gradual growth expected in home and vehicle financing as recovery kicks in the economy.

Watch the full interview of Alexander Muthoot

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