Muthoot Fincrop Limited IPO

MFL is the third largest gold loan non-banking financial company (NBFC). The promoters have spent over seven decades in the business of lending against gold jewellery. Over the years, the group has established a strong reputation and brand in South India, particularly Kerala and Tamil Nadu, and has an appropriate assessment and underwriting methodology.  The gold loan AUM is estimated at around Rs 18,068 crore as on March 2021 from Rs 14,924 crore as on March 31, 2020.

Currently, the group operates in five major segments: loan against gold jewellery, two-wheeler finance, microfinance, housing finance and small business loans. Overall managed AUM of MPG is estimated to be around Rs 26,993 crore as on March 31, 2021 (Rs 24,103 crore as on March 31, 2020). The proportion of gold loans has seen steady increase to over 60% as on March 31, 2020 and further to 67% as on March 31, 2021. The microfinance portfolio is second largest with around 18% of overall portfolio of the group as on March 31, 2021. 

The gross NPAs for MFL stood at 1.92% as on March 31, 2021, against 1.86% as on March 31, 2020. The NPAs are primarily in the SME portfolio wherein the performance was affected due to slowdown in the sector. In the gold loan segment, MFL has maintained healthy asset quality over the years, backed by strong collection efficiency, as reflected in GNPAs of 1.0-2.0% over the last five fiscals. Asset quality, as better measured by credit costs, has also been under control within 0.5% during this period for gold loans.

MFL's profitability, on standalone basis, has improved in fiscal 2021 on account of higher returns from the gold business during the pandemic, steady reduction in overall opex cost over the years and overall low credit costs.
RoMA improved significantly to 1.8% compared to just 1.2% and 1.0% in fiscal 2020 and 2018, respectively. On a consolidated level, MFL’s profitability accounts for 83% of the overall group profits and is expected to support the group’s profitability. Therefore, profitability of MPG is expected to improve steadily over the medium term. However, the group’s ability to manage earnings primarily within non-gold segments will be monitored

High geographical concentration persists, with South India accounting for around 63% of the gold loan portfolio; with Tamil Nadu and Kerala constituting around 26% of the gold loan portfolio as on March 31, 2021 (as compared to 70% and 34%, respectively, as on March 31, 2019). At the MPG level, around 80% of AUM is concentrated in South Indian states, with Tamil Nadu and Kerala constituting around 47.

The non-gold segments accounted for less than 35% of the overall portfolio as on March 31, 2021. While MPG has managed to grow these businesses and increase the segmental share over the last 2-3 years, potential challenges linked to seasoning of the loan book and asset quality remain. Asset quality in both microfinance and vehicle finance segments has witnessed deterioration. The 90+ dpd level for MML (microfinance business) stood at 8.1% as on March 31, 2021 (5.7% as on March 31, 2020). The gross NPAs in case of MCSL (vehicle finance business) have increased to 11.1% as on March 31, 2021, against 6.8% as on March 31, 2020. The 90+ dpd for MHFL (housing finance business) stood at 3.5% as on March 31, 2021.