Muthoot Finance is considered as the largest gold loan Non-Banking Financial Corporation & Muthoot Finance Ltd. stock has seen a tremendous growth during Covid-19 pandemic.
In this article of Muthoot Finance multibagger analysis we at Futurecaps have attempted to find the future prospects & potential of the Muthoot Finance Ltd. stock.
Muthoot Finance Ltd.
About Muthoot Finance
Established in 1997 with headquarters in Kerala, Muthoot Finance became a public limited company in the year 2008.
Aside from being the largest gold loan NBFC in india, Muthoot Finance Ltd. also provides foreign exchange services, overseas money transfers, wealth management as well as travel & tourism services.
The company’s overseas presence is established in United Kingdom, United States & United Arab Emirates.
The company’s targeted market penetration is focused on small businesses, traders, SMEs & salaried section.
Following are the Checklist parameters :
|History of Consistently Increasing Sales, Earnings & Cash Flow||Yes|
|Durable Competitive Advantage||Moderate|
|Future Growth Drivers / Sector Growth||Moderate|
|Conservative Debt (long term debt < 3 Net Profit)||High Debt|
|Debt Equity Ratio, Current Ratio||High Debt, Current Ratio is 3.35|
|Return on Equity must be Above Average||29.1%|
|Low CAPEX required to maintain current operations|
|Inventory Turnover Ratio, Debtor Days, ROCE||Debtor days decreasing, ROCE : 16%|
|Management is holding / buying the stock||Promoter holding is at 73.4% & Consistent|
|Market Price < Intrinsic Value||At 58% Discount Intrinsic Value Calculator|
|Stock Price is consolidating (now)||Yes|
|Stock Price is growing in past years along with EPS growth||Yes|
|Consolidated PE, PB Ratio, PEG Ratio|
PE 13, PB 10, PEG 0.5
|Cash Flow Positive, Net Profit % greater than 8%||Cash Flow: Positive Profit: 10%|
|Paying Dividends, Tax||Dividends: 19% Tax: High|
|EPS Growth Rate||Average 20% above past 3 years|
|Jump in Trailing Result EPS||Yes|
|Jump in Quarterly Result EPS||Yes|
|Expected Gain in 5 Years||2X Maximum, Avoid|
|Price Movement Graph, 52 Week High & Low||High Price now|
|Volume Analysis||High Volume|
|Power of Brand||High|
|Corporate Governance, Reputation of Leaders||Good|
Positive Factors for Muthoot Finance :
- Being the largest gold loan NBFC, Muthoot Finance deals in one of the most secure & profitable asset class resulting in almost Zero NPA or loan loss.
- Retained 15% loan growth guidance for Financial Year 2021
- Maintained QR Profit even in current Corona Times too
- Aggressive branch expansions
- Improvements in margins have been observed Quarter on Quarter.
- Company’s Gold loan portfolio’s LTV (Loan to Value) ratio stands at only 63%
- Muthoot Finance reported an increase of 24% YoY in consolidated net profit & increase of 12% YoY in its AUM (Assets Under Management) in the September quarter.
Concerning Factors :
- Borrowing cost has come down to 7.5% for 3 years & 8% for 5 years from 9.5% & 10% respectively for non-convertible debentures.
- Margins are lower for Year on Year even after improvements in QoQ results.
- Even though gold loan business has improved but subsidiaries businesses has not seen any growth
- A flat growth has been observed in home loans & vehicle loans businesses for the last 6 months.
- Trading at 10X of Book Value – Gold Price is Up hence current high valuation
- When Gold Price goes down after Economic Revival this Muthoot Finance could go down too
The above detailed analysis by Futurecaps experts, shows that even though Muthoot Finance Ltd. has seen a decent growth in gold loan business, however its subsidiary businesses that used to contribute around 12% to its revenue has been struggling.
Moreover with the entry of big banks in gold refinancing, the already reducing margins are expected to decrease further in future.
Based on the properties above we acknowledge that Muthoot Finance may encounter 2X plus growth in 5 years but given the Concern Factors it does not possess all the good qualities of a Multibagger. Hence advising to avoid this stock.