Equity Research INDIA

October 18, 2021

BSE Sensex: 61306
Gold loan
ICICI Securities Limited
is the author and
distributor of this report
High spread between ROE and AUM growth set up
strong compounding plays
Sector Update We initiate coverage on gold loan companies with BUY ratings on Muthoot
Finance (Muthoot) and Manappuram Finance (Manappuram), with target prices of
Financials Rs1,904 and Rs280, respectively, based on Sep’23E (average FY23/24E) SOTP
Services valuations (3.3x/2.2x P/B for gold loan business of Muthoot/Manappuram and 1.0x
P/B for non-gold businesses for both players). Key investment thesis remains that
of steady 15% growth outlook in gold loan AUM with 6.0-7.0% expected RoA and
Muthoot (BUY) 22-26% RoE over the medium term. We believe this should lead to 18/14%
earnings CAGR over FY21-25E for Muthoot/Manappuram at standalone level.
Target price: Rs1,904
 Gold loan continues to exhibit low risk steady growth business potential. Gold
loan AUM of Muthoot recorded 13%/16% CAGR over last 10/5 years till FY21. This
Manappuram (BUY) has been achieved with average credit cost of 0.4/0.5% and average RoE of
24.4/24.5% over last 10/5 years. Comparable numbers for Manappuram are 10/14%
Target price: Rs280 gold loan AUM CAGR with average RoE of 18.4/23.1% and credit cost of 0.5/0.4%
(all over last 10/5 years).
 We do not agree on the concerns surrounding growth. Gold loan offers the
largest market of secured lending in India. The prevalence of gold among Indian
households (~20-25k tonnes out of which ~4% is kept as collateral under organized
gold loan market) and the vast population without formal credit availability (Indian
household debt to GDP ratio was ~12% in Mar-20 vs ~60% in China) is a
combination which we believe will keep gold loan very relevant as an overdraft
facility for masses. This is underlined by the near 20% CAGR in gold loan AUM over
the last decade despite intermittent periods of regulatory changes.
 Concerns on market share loss to banks and new age tech players remain
unfounded. Higher LTVs and relative lower growth in other segments had made
gold loan an area of heightened interest for banks in FY21. However, operationally
intensive nature of the business, existing well-distributed infrastructure across India
and a well-established client base provide strong business moats for specialized
NBFCs. The ability to focus on low ticket, large scale and operationally demanding
nature of gold loan business also remains challenging and sub optimal for banks in
the long run. Similarly, there are new online players that are using digital channel to
offer gold loans (also started by Muthoot/Manappuram). Yet, the ultimate physicality
of gold transfer makes gold loan relatively secure from any major disruption.
 Price risk remains the sole business vulnerability; tenure and LTV provide
safeguards. The price risk has been managed by a somewhat linear relationship
between the loan tenure and the LTV while rest is managed through auctions.
 ROE>>AUM growth=Diversification. The superlative spread between RoE and
AUM growth for gold loan NBFCs generates extra cash, which can be put for
diversification. As such, it is on expected lines that Muthoot and Manappuram have
diversified into non-gold segments led by microfinance, affordable housing and
vehicle loan. Non-gold loan business contribution to consolidated PAT has been
4.7/2.5% for Muthoot and ~16.9/1.6% for Manappuram in FY20/21.
Research Analysts:
RoA(%) RoE(%) PB(x)
Ansuman Deb Year to Mar FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E
[email protected] Muthoot (SA) 6.5 6.3 6.7 7.0 27.8 26.1 26.9 26.0 4.1 3.5 2.9 2.4
+91 22 6637 7312 Manappuram (SA) 6.9 6.2 6.5 6.7 27.7 22.5 22.8 22.4 2.4 2.0 1.7 1.4
Kunal Shah PE(x) EPS (Rs) Book Value Per share (Rs)
[email protected] Year to Mar FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E
+91 22 6637 7465
Muthoot (SA) 16.7 14.3 11.6 10.0 93 108 134 156 380 449 543 653
Vishal Singh Manappuram (SA) 9.7 9.7 8.0 6.8 20 20 25 29 82 98 117 140
[email protected]
Source: Company data, I-Sec research, Note: SA- Standalone
+91 22 6637 7312
Please refer to important disclosures at the end of this report
Gold loan, October 18, 2021 ICICI Securities

TABLE OF CONTENT

Organized gold loan clocked ~19% CAGR in last decade ........................................... 3

Multiple phases of evolution of the gold loan industry .................................................... 5
Banks vs specialised NBFCs competitive dynamics .................................................... 13
Comparison of specialised gold loan NBFCs with other players .................................. 15
Key characteristics of the gold loan business ........................................................... 17
Dominant contribution from South India........................................................................ 17
High share of unorganised players ............................................................................... 17
Hypothesis 1: Growth of gold loan is not sustainable ............................................... 18
Hypothesis 2: Chances of digital disruption in gold loan industry are relatively low
......................................................................................................................................... 21
Case study- Rupeek Fintech Pvt. Ltd. (Rupeek) ......................................................... 22
Hypothesis 3: Can combination of gold loan and affordable housing loan business
make way for best NBFC business? ............................................................................ 24
Valuation comparison between Muthoot and Manappuram...................................... 26
Muthoot and Manappuram: Gold loan business comparison ................................... 27
Muthoot and Manappuram: Non-gold businesses comparison................................ 43
MFI subsidiaries: Belstar and Asirvad........................................................................... 45
HFC: Another diversified product .................................................................................. 54
Vehicle finance .............................................................................................................. 59

COMPANIES

Muthoot Finance ............................................................................................................... 61

Manappuram Finance ...................................................................................................... 79

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Gold loan, October 18, 2021 ICICI Securities

Organized gold loan clocked ~19% CAGR in last

decade
Chart 1: Trend of organized gold loan industry (exclusive of agricultural loans)
1,800 1,750
1,600
1,600
1,450 1,450
1,400
1,350 1,350
1,400
1,200
1,200

1,000
(Rs bn)

800 700

600
375
400
250
150
200

0
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: DRHP, IMacs

The size of the organized gold loan industry including agriculture loans (wherein gold
is taken as collateral) is almost 1.5x that of the organized gold loan industry excluding
agriculture loans. Including agriculture loans, the organized gold loan industry has
grown at an even stronger pace since FY19 (~31% growth in FY21 owing to cautious
stance taken by financial institutes in other loan products due to pandemic-hit
economy and higher gold prices).

Chart 2: Trend of organized gold loan industry (inclusive of agricultural loans)

4,500 4,285

4,000

3,500 3,262
2,875
3,000
2,508
2,500 2,199 2,315
(Rs bn)

2,140
2,000

1,500

1,000

500

0
FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Source: DRHP, CRISIL Research

Public sector banks hold the largest market share of the organized gold loan industry
(excluding agriculture loans). However, the market share has largely remained steady
over the years amidst players with no one type of player gaining significant market
share barring a brief tenure between FY13-FY14 when specialized NBFCs lost their
market share to banks mostly because of regulatory changes (explained later in the
report). Nevertheless, they have steadily regained their lost market share.

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Gold loan, October 18, 2021 ICICI Securities
Chart 3: Player wise market share of organised gold loan industry (exclusive of
agricultural loans)
Specialised NBFCs Other NBFCs Public Sector Banks
Private Sector Banks Urban Cooperative Banks
100% 5% 5% 5% 5% 5% 5%
6%
90% 15% 12% 13% 12%
16% 16% 16%
80%
70%
60% 35% 41% 47% 44% 44%
45% 44%
50%
40% 7%
7% 5% 5%
5% 5% 5%
30% 36% 34%
31% 31% 31% 34%
20% 29%

10%
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: DRHP, IMacs

Chart 4: Banks vs NBFCs market share movement of organised gold loan

industry (including agriculture loans)
NBFCs Banks
100%
90%
80%
70%
78% 77% 75% 74% 75% 75% 73% 75%
60%
50%
40%
30%
20%
22% 23% 25% 26% 26% 25% 27% 25%
10%
0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Source: DRHP, CRISIL Research, E- Estimated

If banks vs NBFCs share in organised gold loan industry including agriculture loans is
observed, banks’ share is estimated to have increased in FY21 on the back of
increased LTV (RBI allowed banks to lend gold loans at 90% LTV for non-agricultural
purposes from August 2020 till March 31, 2021 while keeping it at 75% for NBFCs)
and risk aversion by banks in other loan products.

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Gold loan, October 18, 2021 ICICI Securities

Multiple phases of evolution of the gold loan industry

Phase 1 (2008-12) High growth phase: This was on the back of increasing gold
prices\less availability of other types of credit to customers, expansion of specialized
gold loan NBFCs, low cost of funding for NBFCs (PSL benefit) and high LTV.

Chart 5: Growth of organized gold loan industry (excluding agriculture loans)

and average gold prices per 10g
Growth in organised gold loan industry Average gold prices INR/10g growth
100%
90%
80% 87%
70%
71%
60%
50%
50%
40%
30% 34%
20%
22% 22%
10%
0%
FY10 FY11 FY12
Source: DRHP, Bloomberg

Chart 6: Specialized gold loan financiers’ branch expansion leading to strong

growth
Muthoot gold branch strength Manappuram gold branch strength
Muthoot gold AUM growth (RHS) Manappuram gold AUM growth (RHS)
4,000 350%

3,500 190% 3,678 300%

3,000 109%
250%
2,908
2,500 2,733
200%
2,000
65% 2,064 150%
122% 114%
1,500
1,605 53%
100%
1,000 51%
985 1,005 55%
500 50%
645
- 0%
FY09 FY10 FY11 FY12
Source: Company data, I-Sec research

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Gold loan, October 18, 2021 ICICI Securities
Phase 2 (2013-2014): Tepid or negative growth due to decrease in gold prices and
impact from regulatory changes for specialized gold loan NBFCs characterized this
phase.

Chart 7: Growth of organized gold loan industry (excluding agriculture loans)

and average gold prices per 10g
Growth in organised gold loan industry Average gold prices INR/10g growth
25%

20%
21%
15% 17%

10%

5%

0%
-4%
-5% -7%

-10%
FY13 FY14
Source: Company data, I-Sec research

Chart 8: Specialized gold loan financiers faced hiccup in growth; branch

expansions slowed due to regulatory changes
Muthoot gold branch strength Manappuram gold branch strength
Muthoot gold AUM growth (RHS) Manappuram gold AUM growth (RHS)
4,500 4,270 10%
4,0826%
4,000
5%
3,500 3,293 3,293

3,000 0%
2,500
-5%
2,000
1,500 -10%
1,000 -14%
-15%
500 -16%
-18%
- -20%
FY13 FY14
Source: Company data; I-Sec research

Rapid growth of specialised gold loan NBFCs, the speed at which they opened
branches and the rate at which they raised resources from banks, complaints made by
borrowers against NBFCs and steady decline in their capital position led the RBI to
intervene for careful monitoring of these institutions. The RBI also constituted a
working group under KUB Rao wherein some of the objectives were to understand the
impact of gold loan on gold prices and examine the practices followed by gold loan
NBFCs etc. The working group came out with its report in February 2013 post which
RBI brought in further regulations to standardise some of the processes followed by
NBFCs.

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 Gold loan, October 18, 2021 ICICI Securities
Table 1: KUB Rao committee’s report (Feb 2013): Key highlights
Link of the report Click here
 Rapid growth of assets, borrowings and branch network needed to be
monitored closely.
 NBFCs needed to diversify their source of funding, thereby, reducing their
reliance on bank borrowings.
 Capital adequacy ratio was continuously declining; group recommended
improving the capital position.
 Need to review the method followed by NBFCs to raise privately placed
non-convertible debentures from public at that point of time.
 Ensured transparent communication of loan terms to customers and
avoidance of enticing advertisements given by gold loan NBFCs of
disbursing loans in 3 to 5 minutes.
 Establishment of proper customer complaints and grievances redressal
system.
 Ornaments to be auctioned at the price closer to prevailing market price on
the date of auction; auctions to take place in the taluka or district
headquarters; full details of auctions in terms of value fetched and other
details need to be provided to the customers.
Key recommendations and conclusions of
the report for gold loan NBFCs  NBFCs need to disclose all the details of interest rate for various schemes,
procedure to arrive at net weight of gold and gold price in local language at
their branches.
 Documentation related to loan needs to be standardized with all required
details and legal requirements.
 Obtaining a copy of PAN card in all loan proposals exceeding Rs0.5mn.
 Case for reviewing the LTV stipulation of NBFCs from 60% to 75%.
 The value of gold needs to be standardized while arriving at the LTV ratio
 Recommended a change in the method of LTV calculation as making
charges etc. are not required to be added while arriving at LTV.
 Restriction on number of branches needs to be considered.
 Extension of Ombudsman scheme for customers of NBFCs.
 Committee concluded that (1) increase in gold loans does not significantly
impact gold prices (2) Probability of volatility in gold prices impacting the
gold loan market is low and (3) Gold loan NBFCs are a socially useful
function and that provides a strong rationale for a careful regulation of
activities of these NBFCs
Source: RBI, I-Sec research

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 Gold loan, October 18, 2021 ICICI Securities
Table 2: Sequence of regulations specific to gold loan NBFCs between 2011 and 2014
Date Regulation Impact
RBI disallowed PSL benefit for NBFCs that are lending against gold One source of funding access got shut leading to higher cost of
Feb-11
collateral for agri purposes borrowing
Competitive advantage got weakened against banks and
Mar-12 RBI capped LTV for loan against gold at 60%
unorganized players
Minimum tier 1 capital of 12% by April 2014 for NBFCs whose gold Higher capital requirement leading to low leverage and therefore,
Mar-12
loans are at least 50%+ (as a % of total assets) hindering the growth
NBFCs shall not grant any advance against bullion/primary gold & Growth opportunity got hampered as it squeezes the basket of gold
Mar-12
gold coins against which loan can be given
Reduction in cap on a single gold NBFC exposure by a bank from
Apr-12
10% of net worth to 7.5% of net worth
Loan against gold will not be eligible for PSL if securitized or
Jul-12 Developed difficulties in raising funding
assignment by NBFCs
Restricted number of investors in an issue to 49 investors, minimum
Jul-13
subscription amount for a single investor of Rs2.50mn.
While these NBFCs already had appropriate infrastructure, this
Sep-13 Appropriate Infrastructure for storage of gold ornaments regulation made the companies further strengthen their
infrastructure
Sep-13 Prior approval of RBI for opening branches in excess of 1,000 Leading to low branch expansion
Sep-13 Standardization of value of gold in arriving at the loan to value ratio
Sep-13 Verification of the Ownership of Gold
The auction should be conducted in the same town or taluka in
Sep-13
which the branch that has extended the loan is located
While auctioning the gold the NBFC should declare a reserve price
for pledged ornaments. The reserve price for pledged ornaments
should not be less than 85% of the previous 30 day average closing
Sep-13
price of 22 carat gold as declared by The Bombay Bullion
Association Limited and value of the jewelry of lower purity in terms These regulations are related to standardization of each step of the
of carats should be proportionately reduced. gold loan process i.e. origination, valuation, financial reporting,
auction process etc. While some regulations had teething problems
Mandatory to provide full details of the value fetched in the auction
only as companies had to standardize the processes, however,
Sep-13 and the outstanding dues adjusted and any amount over and above
regulations such as requirement of PAN card and disbursement
the loan outstanding should be payable to the borrower.
through check for high value loans created some problems as
NBFCs must disclose in their annual reports the details of the
customers generally did not have PAN card readily available and
auctions conducted during the financial year including the number
Sep-13 these customers prefer cash receipt as they used cash in day-to-
of loan accounts, outstanding amounts, value fetched and whether
day operations.
any of its sister concerns participated in the auction.
NBFCs financing against the collateral of gold must insist on a copy
Sep-13
of the PAN card of the borrower for all transactions above Rs500K
High value loans of Rs100,000 and above must only be disbursed
Sep-13
by cheques
Sep-13 Documentation across all branches must be standardized
NBFCs shall not issue misleading advertisements like claiming the
Sep-13
availability of loans in a matter of 2-3 minutes.
Created a level-playing field with all organized players required to
Jan-14 LTV cap increased to 75% of underlying collateral
adhere to same LTV regulations
Source: RBI, I-Sec research

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Gold loan, October 18, 2021 ICICI Securities
Following the fall in gold prices and regulatory changes, specialised gold loan
financiers standardised their processes and systems. It led to enhancement of their
existing processes and infrastructure as well, therefore, helping them to be ready for
stable growth in future.

To protect itself from gold price fluctuations, Manappuram shifted its focus towards
shorter tenure product i.e. 3 months along with encouraging customers to make
accrued interest payment regularly. Muthoot on the other hand continued to focus on
12 months’ product. However, Muthoot too encouraged customers to make monthly
interest payment to be in touch with customers regularly and inculcate the habit of
repayment amidst customers.

Furthermore, huge regulatory changes indicated the fact that regulators were
uncomfortable with the idea of large and prominent NBFCs focused exclusively on
gold loans paving the way for gold loan NBFCs to think about diversification.
Consequently, Muthoot and Manappuram started diversifying their lending portfolio to
MFI, Housing and Vehicle Finance through either acquisitions or their own gold loan
branches (covered in detail in the report).

Phase 3 (2015-19): Recovery phase post incorporating the regulatory change

Chart 9: Growth of organised gold loan industry (excluding agriculture loans)

and average gold prices per 10g
Growth in organised gold loan industry Average gold prices INR/10g growth
14%
12%
10% 12%
10%
8% 9%
6%
6%
4%
2% 4% 4%
0%
0% -1%
-2% -3%
-4% -6%
-6%
-8%
FY15 FY16 FY17 FY18 FY19
Source: DRHP, Bloomberg

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Gold loan, October 18, 2021 ICICI Securities
Chart 10: Specialised gold loan financiers had stable growth. However, branch
expansion remained range bound
Muthoot gold branch strength Manappuram gold branch strength
Muthoot gold AUM growth (RHS) Manappuram gold AUM growth (RHS)
5,000 20%
4,480
4,245 4,275 4,307 4,325
4,500 18% 18%
4,000 16%
3,293 3,293 3,293 3,330 3,372
3,500 12% 14%
3,000 12%
13%
2,500 10%
10% 7%
2,000 10% 8%
9%
1,500 7% 6%
1,000 5% 4%
4%
500 2%
- 0%
FY15 FY16 FY17 FY18 FY19
Source: Company data, I-Sec research

Post the period of regulatory changes, the industry started recovering and achieved
stabilized growth. Specialized NBFCs again started growing at a stable pace. As far as
demonetization is concerned, there was some impact in last 2 quarters of FY17 and
first 2 quarters of FY18 for specialized NBFCs in terms of growth. However, the impact
on the overall industry was minimal.

Phase 4 (2020-21): Growth back to high levels on the back of increased gold prices,
high LTV allowance to banks, less availability of alternative loan products to customers
owing to slow economic environment and covid-led weak macro environment.
Specialized gold loan NBFCs also expanded their online gold loan products.

Chart 11: Growth of organized gold loan industry (including agriculture loans)
and average gold prices per 10g
Growth in organised gold loan industry Average gold prices INR/10g growth
35%

30% 31%
30%
25%

20%
19%
15%
13%
10%

5%

0%
FY20 FY21
Source: DRHP, CRISIL research, Bloomberg, FY 21 organized gold loan industry growth is based on estimations

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Gold loan, October 18, 2021 ICICI Securities
Chart 12: Specialized gold loan financiers had strong growth; however, branch
expansion remains range bound
Muthoot gold branch strength Manappuram gold branch strength
Muthoot gold AUM growth (RHS) Manappuram gold AUM growth (RHS)
5000 35%
4,567 4,632
4500 31% 30%
4000 3,524
3,529
3500 25%
26%
3000 22%
20%
2500
2000 15%

1500 12% 10%

1000
5%
500
0 0%
FY20 FY21
Source: Company data, I-Sec research

The growth returned from FY20 with the combination of increase in gold prices and
less availability of other types of credit in the market owing to covid-hit macro-
economic environment. Banks also increased their gold loan portfolio significantly on
the back of increased LTV allowance to 90% until March 31, 2021. Hence, banks
would have increased their market share in FY21.

Chart 13: Growth in gold loan portfolio of some of the banks

FY20 FY21
250

200 210

150
158
(Rs bn)

129
100
90 93 92
78 72
50 61 65
54
38 5 33
16
0
SIB Federal CSB DCB KVB CUB HDFC SBI
(incl. agri) (incl. agri) (excl. agri) (excl. agri) (incl. agri) (incl.agri) (excl. agri) (excl. agri)
Source: Company data, I-Sec research
Note: SIB: South Indian Bank, CSB: Catholic Syrian Bank: KVB: Karur Vysya Bank, CUB: City Union Bank

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Gold loan, October 18, 2021 ICICI Securities
Table 3: Some of the banks’ commentary about their gold loan book outlook
Institute Commentary Source
South Indian Bank Bank is positive about this segment and is trying to leverage Q1 FY 22 Earnings call
all opportunities to grow this portfolio in a balanced way
Federal Bank Gold loan growth will be a function of LTV, gold price etc. As Q4 FY 21 and Q1 FY 22
the bank has already grown by 70% y-o-y, the same type of Earnings call
growth on high base will be difficult, however, it is targeting
30-40% type of growth. Growth moderated in Q1 FY 22, but
had started picking up towards the end of first quarter as per
management
Catholic Syrian Bank 8% q-o-q de-growth in gold loan portfolio in Q1 FY 22 due to Q1 FY 22 Earnings call
increase in slippages and LTV reduction to 75% from 100%.
The bank sees the demand coming back and is confident of
achieving around 25% growth in FY 22.
DCB Gold loan continued to show decent growth in Q1 FY 22 and Q1 FY 22 Earnings call
bank will continue to focus on the same. However, the
contribution of the same in total portfolio remains small.
Karur Vysya Bank Gold portfolio increased by around Rs 3 billion in Q1 FY22 as Q1 FY 22 Earnings call
compared to Rs 7 bn in Q1 FY 21 as the bank was
conservative because of lockdown situation and LTV revision.
Bank started seeing growth, however, it is not confident of
achieving last year type of growth. Having said that, the
bank's focus will be there provided it is operationally
comfortable and confident.
City Union Bank Bank had seen ~100% growth in gold portfolio last year. This Q1 FY 22 Earnings call
year, it is expecting same kind of growth with target
disbursement of around Rs 20 to 25 bn
Source: Company data, I-Sec research

Chart 14: Trend in banks’ sectoral deployment in gold loans

Banks’ sectoral
700
deployment in gold
sector increased 600
exponentially in FY 622 624
605
21, however, the 500
same is showing
signs of plateauing in 400
(Rs bn)

FY 22 till date due to

300 333
stress faced in gold
portfolio by some of 200 249
the banks majorly due
to LTV revision to 100
75% from 90%, fall in
gold prices and lock- 0
Mar-19 Mar-20 Mar-21 Jun-21 Jul-21
down due to second
Source: RBI, I-Sec research
covid wave. Note: Mar-19 = 29-03-19, Mar-20 = 27-03-20, Mar-21 = 26-03-21, Jun-21 = 18-06-21, Jul-21= 30-07-2021

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Gold loan, October 18, 2021 ICICI Securities

Banks vs specialised NBFCs competitive dynamics

During FY13-15, banks’ market share increased owing to regulatory changes
hindering the growth of specialised gold loan NBFCs. However, they did not grow as
fast as they could as reflected in the slow growth of the overall gold loan industry. Gold
loan is not a focused product for banks. Public sector banks targeted gold loan to fulfill
their PSL regulatory requirements. While some South-based private sector banks
remain focused on this product beyond agri loans, as it is their core offering, their gold
loan growth has been restricted mostly because of focus on other products and
concentration of branches in one or two states of Southern geography.
Banks have a competitive advantage of offering gold loans at lower cost. Hence,
specialised gold loan NBFCs have been trying to compete with banks more on the
customer experience front. It has developed all its processes and systems as per the
needs of the target customer segment due to specialised focus. As per specialized
gold loan NBFCs, some of its key competitive strengths are as follows:
1. Specialised gold loan NBFCs’ turnaround time is lesser than banks. Owing to
small ticket size, the borrower generally wants to procure the loan as quickly as
possible and the availability of well-trained and experienced employees in the
assessment and valuation of gold helps these companies to disburse loans faster.
2. Gold loan NBFCs are open beyond typical banking hours. Staff is well
trained to manage customers. Gold loan NBFCs require minimum
documentation to disburse loan as compared to banks. The products are bullet
payment type, designed as per the needs of the customers as compared to banks’
EMI-based product. While interest rates of NBFCs are higher than banks, they try
to minimise cost by charging low processing fees and nil repayment charges.
3. NBFCs have a geographically wider reach especially in rural and semi-urban
Southern regions where gold loan demand is the highest in India. As
borrowers generally do not want to travel long distances while carrying gold due to
safety reasons, they are more likely to visit these branches rather than travelling
long distances.
4. Better local connect: Generally, in NBFCs, employees hired in the branch are
local people, which make it easier to communicate with borrowers in their local
language, thereby, also ensuring familiarity and comfort. Furthermore, unlike
banks, employee transfers are less frequent in NBFC branches, which ensure
local people are familiar with branch employees therefore building a good rapport
between customer and employees.
5. Specialised approach to gold loan: For banks, gold loan is a small portion of
their overall portfolio. Therefore, banks generally do not have full-time specialised
employees for appraisal of gold. They tend to take the help of external
professionals to appraise the gold. Therefore, the loan can only be given when a
professional is available. However, this is not the case with NBFCs as they have
dedicated trained employees to appraise the collateral and quickly disburse the
loan.
6. Gold loan portfolio lack long term growth perspective for banks. Over and
above that, a low-ticket sized loan segment that requires lot of operational
intricacies i.e. appraisal of gold, security, fraud prevention, auction process etc. is
not appealing for banks from a long-term portfolio growth perspective.

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Gold loan, October 18, 2021 ICICI Securities
Banks’ share in organised gold loan industry increased in 2021 led by 90% LTV
allowed by the RBI for banks till March 31, 2021 as against 75% for NBFCs. Amidst
the falling gold prices and second wave of covid, banks saw stress in their gold loan
portfolio with increase in slippages and restructuring. Specialised NBFCs are dealing
with this situation by offering new schemes to customers, something that banks are
not in a position to do or by auctioning the gold, and something in which these
companies have gained expertise over time.

Both internal and external frauds in gold loan business are the biggest risks. Banks
are witnessing cases of these frauds in their gold loan portfolio in recent times (please
refer to below table for news links). While specialized gold loan NBFCs are also
seeing fraud cases in recent times, they are better placed in protecting themselves
against such frauds. Internal fraud takes place when the company or bank’s own
employees indulge in committing fraud. External fraud is a situation when a customer
commits fraud by pledging fake collateral etc.

Table 4: News links of some of the frauds caught in gold loan business since 2020
Highlight of the news Lending institute News link
SBI unearths Rs0.07bn gold loan scam in Sakhinetiapalli branch (News dated June 25, 2021) SBI Click here
17 people defraud Canara Banks’ 3 branches by pledging fake gold for loan worth Rs8.5mn Canara Bank Click here
(News dated August 23, 2021)
5 including 2 bank officials held for Rs0.0291 crore gold loan fraud in Union Bank of India, Telangana Union Bank of India Click here
branch (News dated October 01, 2020)
Police in search of 14 people who defrauded HDFC Bank by taking gold loan by providing fake gold as HDFC Click here
collateral (News dated Jul 28, 2021)
4 employees of Muthoot Finance Held on fraud charges in Odisha for defrauding the customer Muthoot Finance Click here
(News dated Mar 10, 2021)
Odisha Manappuram Finance staff cons fellow employees in Hyderabad (News dated Jul 10, 2021) Manappuram Finance Click here
Source: I-Sec research; News/media reports

With LTV going back to 75%, increasing asset quality issues and potential cases of
more fraud, moderation in gold prices, and expectation of improvement in economy
leading to an opportunity to lend in other retail products, it will be interesting to see
how banks will grow their gold loan portfolio.

Chart 15: Share of online gold loan AUM for gold loan companies
With the advent of
Share of OGL in Muthoot Finance Share of OGL in Manappuram Finance
technology, gold loan 60% 54%
companies also
48%
introduced online gold 50%
loan wherein customers 39%
can avail this service to 40%
32%
transact online, get a
top-up or renew their 30%
loan etc. They also
introduced doorstep 20% 24%
12%
gold loan service 18% 19%
17%
wherein customers can 10%
get the loan sitting at 10%
home (explained in 0%
FY 17 FY 18 FY 19 FY 20 FY 21
detail later in the report)
Source: Company data, I-Sec research, OGL = Online gold loan

14
Gold loan, October 18, 2021 ICICI Securities

Comparison of specialised gold loan NBFCs with other players

Specialised focus helped specialised gold loan NBFCs to dominate

organised NBFC gold loan industry
NBFCs have grown to attain a significant size in gold loan industry with specialised
gold loan NBFCs maintaining dominant position in the market.

Chart 16: Trend in organised NBFC gold loan industry

1,200

1,112
1,000

800 891
(Rs bn)

705
600
628
551 578
487 511
400 457

200

-
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Source: Company data, I-Sec research, E=Estimated

Chart 17: Trend in player wise market position in NBFC gold loan market
Muthoot Finance Manappuram Finance Muthoot Fincorp
Shriram City Union Finance India Infoline Finance Ltd Muthoottu Mini
Kosamattam Bajaj Finance
100%
7% 9% 8% 6% 5% 6% 9% 10% 12%
9% 5% 6% 7% 6% 5% 4% 4%
80% 3%
14% 15% 13% 13% 16% 17% 15% 15% 14%
60% 19% 20% 18%
18% 18% 19% 19% 19% 17%

40%

47% 47% 48% 48% 47% 46% 48% 46% 47%

20%

0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E
Source: Company data, I-Sec research, E=Estimated

Specialised gold loan NBFCs have continued to hold dominating position in the NBFC
gold loan market. This is in spite of gold being an attractive business in terms of low
credit risk and high RoE as against other asset classes.

15
Gold loan, October 18, 2021 ICICI Securities
Chart 18: Comparison of credit cost with NBFCs in other segments
Muthoot’s credit cost FY15 FY16 FY17 FY18 FY19 FY20 FY21
inched-up in FY 16 4.0
and 17 majorly due to 3.5
increase in
3.0
provisioning of
standard assets 2.5
2.0
(%)1.5
1.0
0.5
-
Muthoot Manap puram Chola STFCL HDFC Aavas LTFH
(Go ld) (Go ld) (Ve hicl e) (Ve hicl e) (HFC) (Affordable (Diversified )
hou sin g)
Source: Company data, I-Sec research

Chart 19: Comparison of RoE with companies operating other asset classes
FY15 FY16 FY17 FY18 FY19 FY20 FY21
30.0

25.0

20.0

15.0
(%)

10.0

5.0

-
Muthoot Manap puram Chola STFCL HDFC (HFC) Aavas LTFH
(Go ld) (Go ld) (Ve hicl e) (Ve hicl e) (Affordable (Diversified )
hou sin g)
Source: Company data, I-Sec research

Competitive advantages of specialised gold loan NBFCs

One of the main reasons that acts as a barrier to enter this business is its operationally
intensive nature. Companies need to have capabilities such as trained employees to
appraise the gold, strong security infrastructure to protect from robbery and internal
fraud, trained internal audit team to minimise the fraud risk, strong auction process
and infrastructure. Furthermore, there should be capacities to service low-ticket size
customers with high churn in a year owing to shorter tenure. As this business is a high
operating cost business, it is important to build systems and processes to achieve high
operating efficiency in order to earn high profitability. This is something specialised
gold loan NBFCs have been able to do over the years mainly because of having first
mover advantage, huge branch network and strong brand recall. These companies
have also built a huge branch network, which further helps them to be closer to their
customers, which is important in this business, as customers do not like to carry their
gold over a longer distance. Consequently, it is difficult for a new entrant to build the
capabilities, which can lead to scale benefit for it, therefore, bringing operational
efficiencies.

16
Gold loan, October 18, 2021 ICICI Securities

Key characteristics of the gold loan business

Dominant contribution from South India
South has been a Chart 20: Trend of geography-wise distribution of NBFC gold loan AUM
dominant market in South North East West
gold loan industry as 100%
13% 14% 16% 17% 18% 18%
most of the gold loan 90% 19%
6% 7%
demand comes from 80% 7% 8% 9% 10%
9%
South India. Hence, 70% 19% 19% 19% 20%
South-based private 60%
20% 20% 20%
banks and public
50%
sector banks are
40%
active in this industry.
30% 62% 60%
However, over the 57% 55% 53% 52% 52%
years, players have 20%
been expanding in 10%
other geographies. 0%
Lower penetration in FY14 FY15 FY16 FY17 FY18 FY19 FY20
other geographies Source: DRHP, CRISIL Research, I-Sec research
Note: Data is of top 2 specialised gold loan financiers in the country
provides growth
opportunity.
High share of unorganised players
There is an opportunity to gain share from the unorganised sector, which is ~2 times
the organised sector. The main competitive advantage of an unorganised player is the
24 hours’ availability, easy reachability, high LTV, less documentation etc. However,
these players charge exorbitant interest rates. Therefore, once organised players
succeed in acquiring a customer with an excellent customer experience, it is difficult
for unorganised player to regain the customer.

Chart 21: Increase in share of organized sector in gold loan industry

FY18 FY20

Organised
sector
24%
Organised
sector
35%

Unorganised
sector
65%
Unorganised
sector
76%

Source: DRHP, International Journal of Creative Research Thoughts (IJCRT)

17
Gold loan, October 18, 2021 ICICI Securities

Hypothesis 1: Growth of gold loan is not sustainable

We believe the gold loan industry in terms of history, near-term outlook and long-term
potential possesses strong and steady growth potential and hence, we reject this
hypothesis.

One of the most widely used arguments against growth prospects of the industry is
that it is hugely dependent on gold prices. While that is true to some extent, the
industry has grown in spite of gold price fluctuations over the years.

This is reflected in continuous growth of specialised gold loan NBFCs that have
tweaked their business model to account price fluctuations. The growth can be seen in
their AUM, gold holdings and high continuous disbursement YoY, especially post
regulatory changes and significant gold price fall since FY15.

Chart 22: Significant growth in Muthoot and Manappuram’s gold loan AUM (Rs
bn) and gold holdings (tonnes) over the years
Muthoot Finance gold AUM Manappuram Finance gold AUM
Muthoot Finance gold holding (RHS) Manappuram Finance gold holding (RHS)
600 176 171 200
169
500 149 155
137 142
134 131 150
400 112 118
(Rs bn)

(tons)
300 100
68 72
66 66 60 61 64 65
200 53 51 53
46
50
22
100
157

244
115
260

219

234

244
101
273
111
291
117
342
130
416
170
526
191
26

99

82

92
75
73

- 0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: Company data, I-Sec research

Chart 23: Trend in disbursement of Muthoot and Manappuram

Manappuram’s FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
disbursements are 3,000
higher owing to 2,638
shorter tenure 2,500
implying need for
higher disbursements 2,000
1,689
(Rs bn)

to achieve good
growth 1,500 1,245
966 896
1,000
660 732 622
504 479 516 516 576 525
500 361
205 203 245

-
Muthoot Manappuram
Source: Company data, I-Sec Research, Note: Muthoot’s FY 13/14 are estimated

18
Gold loan, October 18, 2021 ICICI Securities
Apart from the good performance of gold loan NBFCs, the management of these
companies is very confident about their future growth aspects and both the
managements have insisted on growing steadily at around 15% every year.

“We have been giving a guidance of 15% every year for the last several years.
We have — next year also we would like to give that guidance as 15% only.
Probably, we should do better, but anyway, we didn’t want — we wanted to give
only a very conservative guidance. We have given the guidance of 15% for last
several years, previous to previous year, we grew by 17%, previous year we
grew by 19%, and last year, previous to that, we grew by 22% and this year we
grew by 26%”

-George Alexander Muthoot; Managing Director (Q4FY21 concall)

“Objective of growing gold loan AUM at 10-15% while maintaining granularity”

-FY21 annual report

Above all, Indian households are estimated to be in possession of around 20,000-

25,000 tonnes as per world gold council and there is steady yearly demand of gold for
Indian households, therefore, leading to constant increase of total gold holding stock
within Indian households. India is the second largest consumer of gold after China.

Chart 24: Trend in yearly gold demand in India (gold demand was impacted due
to covid in FY20/21) (in tonnage)
1,200
1,002 974
1,000 959
914
833 857
771 760
800
666 690
(tons)

600

400
281
216
166
200

-
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 H1 H2 H1
CY20 CY20 CY21
Source: WGC; Note: Above-mentioned years are calendar years

In terms of penetration (gold is kept as collateral in organised sector), the same is also
estimated to be lower at around 4%. While low penetration provides an opportunity to
grow, gold prices can be a key factor while looking at penetration because in case
gold prices are on an increasing trend, customers need to keep less gold with the
lender for the same amount of loan. Similarly, in case of decrease in gold prices,
lenders will ask for more gold to keep as collateral, which would increase the
penetration. On the other hand, low penetration can also be because of continuous
high increase in the stock of gold within Indian households due to continuous high
demand. The penetration shot up in FY21 in spite of increased gold prices indicating
the fact that more and more customers have used their gold to take loan in this year.

19
Gold loan, October 18, 2021 ICICI Securities
While the shot up in penetration level can be because of less availability of other types
of credits, it will be interesting to see how sustainable this penetration level will be with
time. We estimate the penetration will continue to increase steadily.

Chart 25: Trend in gold penetration and gold prices

4.5% 40%
34%
4.0% 35%

4.1%
30%

3.9%
3.5%

3.8%
22% 22%
25%

3.5%

3.5%

3.5%
3.4%
3.0%
17%
20%
2.5% 12%

2.7%
15%
2.0%
10%
1.5%
5%
-1%
1.5%

1.0% -4% -3%

-6% 0%
0.5% -5%
0.0% -10%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Gold penetration Average gold prices INR/10g growth (RHS)
Source: DRHP, Bloomberg
Note: Gold penetration = gold kept as collateral in organized sector

Consequently, we believe that huge stock of gold in the hands of Indian households,
steady demand of gold in India, lower share of organised sector, lower penetration in
other geographies than Southern region and upward movement in gold prices are the
main triggers for overall increase in gold loan industry in India.

20
Gold loan, October 18, 2021 ICICI Securities

Hypothesis 2: Chances of digital disruption in gold

loan industry are relatively low
We agree to this hypothesis considering the ultimate physicality of handling gold
involved in a gold loan transaction.

Like any other industry, lot of digital players have entered the Indian lending space
and are trying to revolutionise the industry by using data analytics, machine learning
tools and creating algorithms to smoothen the entire loan journey of the customer,
thereby, enriching the customer with excellent service. Gold loan industry has also not
escaped from this and there are fintech players entering this segment to disrupt the
industry.

However, there are unique aspects of gold loan business, which makes it less
vulnerable to disruption as follows.

1. The ultimate physicality of underlying gold involved makes digital operation less
seamless.
2. The requirement of a person physically coming home for gold collection also adds
another dimension to the entire transaction.
3. Digital players are necessarily not targeting the same segment as gold loan
NBFCs. While gold loan NBFCs are targeting bulky retail networks with heavy
dependence on personnel and low ticket sized transactions, digital players can
target higher ticket sized players. Some of the gold loan players have also
confirmed this during our channel checks.

21
Gold loan, October 18, 2021 ICICI Securities

Case study- Rupeek Fintech Pvt. Ltd. (Rupeek)

Rupeek commenced its operations in FY16 from Bengaluru. The main aim of Rupeek
is to make gold loan cheaper for customers and provide superior customer service.
Top-tier PE investors such as Sequoia Capital, Accel Partners, Bertelsmann India
Investments and GGV Capital back it.

Rupeek offers gold loans at the customer’s doorstep and completes the loan
underwriting-to-disbursal process within 30 minutes. With an online-only strategy,
Rupeek offers gold loans at low interest rate (starting at 0.89% per month). While
Rupeek has a non-banking financial company (NBFC) license, it primarily lends
through its banking partners and not from its own book and has around 15 major
banks, including both the largest PSU and private bank, on board as lenders across
various levels of integration.

As such, Rupeek is operating as more of a gold finance distributor now, which

opens up significant potential considering limited capital requirements for such
business.

Gold loan in 4 easy steps:

Step 1: Customers can apply via phone number. Rupeek’s representative calls within
5 minutes to help customers.

Step 2: Rupeek’s representatives visit customers’ home or office at customers’

convenience wherein the representative will complete all the formalities such as KYC,
appraisal of gold etc.

Step 3: Upon completion of formalities, loan amount gets transferred to customers’

account before Rupeek’s representative leaves.

Step 4: Afterwards, the representative will store the gold at the nearest partner banks’
branch and safety vault. Gold is 100% insured which is free to the customer.

Trusted bank partners: Rupeek’s lending partners comprise Federal Bank, Karur
Vysya Bank, ICICI Bank etc. It also has its wholly owned subsidiary, Rupeek Capital,
which also provides the loan. However, ~ 90% of loans generated are through banking
partners. Along with doorstep gold loan, customers can also get the gold loan by
visiting their nearest branches of partner banks of Rupeek.

Achievements thus far: Rupeek is one of the best-rated gold loan applications on
Google play store in India. It has a rating of around 4.6 on play store with over 100,000
downloads and over 17,000 reviews. After starting its operations in Bengaluru, the
company has diversified into 30+ cities serving over 500,000 customers. Furthermore,
it has raised Rs 7,080 million of capital since its inception as per CRISIL Ratings.

22
Gold loan, October 18, 2021 ICICI Securities
Key financials of Rupeek (consolidated)
Table 5: Financial summary
(Rs mn) FY20 FY21
Total Assets 4,169 6,448
Advances (Originated) 6,530 14,529
Total Income 349 920
PAT -772 -1,603
Gross NPA 0.1% 0.2%
Source: CRISIL Ratings

23
Gold loan, October 18, 2021 ICICI Securities

Hypothesis 3: Can combination of gold loan and

affordable housing loan business make way for best
NBFC business?
The business combination has its merit. Gold loan and affordable housing businesses
complement each other. High RoE gold business paves the way for high capital
availability, which can be deployed in affordable housing finance, which requires
capital infusion at regular intervals for maintaining high growth. Furthermore, bad
financial years in one business can cover for the other, therefore, leading to have
smooth growth and RoE and hence ultimately higher value for the investors.

To test this hypothesis, we have created two dummy companies - one gold loan
company and another one being affordable housing loan company on the basis of
certain assumptions (refer below table). One major assumption is that both companies
are operationally mature.

Table 6: Assumptions for both dummy companies

Yearly assumptions for gold finance business
(Rs Mn) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
AUM growth 25.0% 21.0% 20.2% 9.7% 9.9%
Avg. yield on AUM 22.0% 22.0% 22.0% 22.0% 22.0% 22.0%
Avg. cost of funding 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Other income to AUM 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Opex to AUM 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Credit cost on AUM 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Tax % on PBT 28.0% 28.0% 28.0% 28.0% 28.0% 28.0%
Risk weight on loan 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Risk weight on cash 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Other assumptions (Rs Mn)
Starting equity 700
Starting disbursement 10,000
0.75 times of opening
Repayment of loan assets AUM + Disbursement
Debt tenure 3 years

Yearly assumptions for affordable housing finance business

(Rs Mn) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
AUM growth 38.3% 35.3% 33.5% 34.0% 34.7%
Avg. yield on AUM 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Avg. cost of funding 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Other income to AUM 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Opex to AUM 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Credit cost on AUM 0.3% 1.2% 0.8% 0.3% 0.3% 0.3%
Tax % on PBT 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Risk weight on loan 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Risk weight on cash 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Other assumptions (Rs Mn)
Starting equity 300
Starting disbursement 3,500
Portfolio run-down As per 10 year tenure
Debt tenure 6 years
Cap on Debt-equity <=8 times
Source: I-Sec research

24
Gold loan, October 18, 2021 ICICI Securities
Post that, we have combined both the businesses to understand the merits of running
these two businesses together. Our findings show the following merits:

1. Smooth AUM growth with no volatility as affordable housing finance business

provides abundant opportunity to grow because of high demand. Therefore, in the
year of low growth witnessed in gold finance business for whatever reasons, more
aggression in affordable housing can lead to smooth growth.
2. No capital infusion required as excess capital generated through gold business
is utilized in affordable housing. Furthermore, combined business is less leveraged
than individual affordable housing finance business.
3. Lower RoA/RoE than gold business but lower leverage than affordable
housing: The volatility in these metrics is also low is the combination business.
Comparison in performance of 3 types of companies is in the below given table.

Table 7: Results of all three types of businesses

Results Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
AUM (Rs Mn)
Gold business 2,500 3,125 3,781 4,545 4,988 5,484
Affordable housing finance 3,150 4,356 5,894 7,868 10,543 14,198
Combined business 5,650 7,481 9,675 12,413 15,531 19,682
AUM growth (%)
Gold business 25.0% 21.0% 20.2% 9.7% 9.9%
Affordable housing finance 38.3% 35.3% 33.5% 34.0% 34.7%
Combined business 32.4% 29.3% 28.3% 25.1% 26.7%
Capital infusion requirement (Rs Mn)
Gold business - - - - -
Affordable housing finance 100 50 110 100 170
Combined business - - - - -
RoA (%)
Gold business 8.0% 8.0% 7.9% 7.9% 8.2% 8.6%
Affordable housing finance 2.0% 1.3% 1.6% 2.0% 2.0% 2.0%
Combined business 4.7% 4.3% 4.3% 4.4% 4.3% 4.1%
RoE (%)
Gold business 23.3% 23.2% 22.6% 21.9% 20.9% 19.5%
Affordable housing finance 17.6% 11.7% 14.8% 18.4% 18.1% 18.0%
Combined business 21.7% 20.5% 21.6% 22.7% 22.2% 21.4%
Debt to equity (times)
Gold business 1.9 1.9 1.8 1.7 1.4 1.2
Affordable housing finance 8.0 7.8 8.3 7.9 8.1 8.1
Combined business 3.6 3.9 4.1 4.2 4.2 4.3
Tier 1 (%)
Gold business 36.5% 36.9% 38.2% 39.6% 44.5% 49.2%
Affordable housing finance 11.6% 11.8% 11.1% 11.5% 11.4% 11.4%
Combined business 22.6% 21.0% 20.1% 19.7% 19.7% 19.2%
Source: I-Sec research

25
Gold loan, October 18, 2021 ICICI Securities

Valuation comparison between Muthoot and

Manappuram
We have used SoTP valuation methodology by using suitable P/B multiples for each
business and applying them on average book value of FY23E and FY24E. For all
businesses other than gold loan business, we have used price to book multiple of 1x
considering the limited track record. Whereas to arrive at the P/B multiple for gold
business, we have used reconciliation of three methods as follows:
1. Residual income method for consolidated business with explicit forecast of
9 years and then using terminal value post that.
2. Two stage Gordon growth model with 15 years of high growth stage and
stable growth stage post.
3. Historical trend of price to forward book value chart.
Based on the combination of above three methods, we have arrived at 3.3x P/B
multiple for Muthoot’s gold business and 2.2x P/B multiple for Manappuram’s gold
business (explained in detail in individual companies’ section).
Following are the three reasons for Muthoot’s high multiple compared to Manappuram:
1) Lower cost of equity of Muthoot
2) Higher RoE of Muthoot
3) Slightly lower growth of Manappuram’s net profit.

Chart 26: Key parameters causing difference between Muthoot and

Manappuram’s P/B multiple of gold business
0.2
0.5
3.3
0.4

2.2

Manappuram Lower cost of Higher RoE of Slightly lower PAT Muthoot multiple
multiple equity of Muthoot Muthoot growth of
Manappuram than
required
Source: I-Sec research

26
Gold loan, October 18, 2021 ICICI Securities

Muthoot and Manappuram: Gold loan business

comparison
Strong growth Chart 27: Significant growth of AUM despite regular hiccups in terms of
witnessed over the regulatory challenges, demonetisation and covid led weak environment
years in terms of gold 600 Gold AUM
loan AUM whereas
steady growth 500

521
519
497
observed in gold 400

462
holdings amidst

408

405
377
300
different cycles of

352

349
336
(Rs bn)

288
gold prices. Growth

272
200

260
244

243
233
accelerated in FY21

216
100
157

on the back of rising

111

130

152

170

177

202

165
101

117

133

162

197

191
26
73

115
gold prices.
99
75

92
82
0
Manappuram saw
FY10

FY11

FY12

FY13

FY15

FY17

FY19
FY14

FY16

FY18

Q1 FY20

Q2 FY20

Q3 FY20

Q1 FY21

Q3 FY21

Q4 FY21

Q1 FY22
Q4 FY20

Q2 FY21
decline in growth due
to decline in gold
Muthoot Manappuram
prices as a result of
Source: Company data, I-Sec research
focus on short tenure
product. Chart 28: Gold tonnage holdings (in tons) also increased, however, somewhat
stagnant since FY 19 due to gold price increase
200 Gold holdings
180
160
176

176
173

171
171

171
169

166
165

163
140
155
149
142

120
137

134

131

100
118
112

80
(Tonne)

60
74

72
72

69

69
68

68
68
66
66

65
64

40
61
60

58
53
53

51

46

20
22

0
FY10

FY12

FY13

FY15

FY16

FY18

FY19
FY11

FY14

FY17

Q2 FY20

Q3 FY20

Q1 FY21

Q2 FY21

Q4 FY21

Q1 FY22
Q1 FY20

Q4 FY20

Q3 FY21

Muthoot Manappuram
Source: Company data, I-Sec research
Chart 29: Trend in monthly average gold prices
60,000 Monthly average gold price Rs per 10 g

50,000

40,000

30,000

20,000

10,000

0
Jan-10

Jan-11

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-19

Jan-20

Jan-21
Jan-12

Jan-18
Jul-10

Jul-13

Jul-14

Jul-15

Jul-16

Jul-19

Jul-20

Jul-21
Jul-11

Jul-12

Jul-17

Jul-18

Source: Company data, I-Sec research, Bloomberg

27
Gold loan, October 18, 2021 ICICI Securities
Muthoot Finance has emerged as one of the biggest gold financiers in India due to its
core focus and first mover’s advantage. Manappuram is the second largest gold loan
NBFC in India. Manappuram is much smaller than Muthoot in terms of size and has a
more diversified portfolio than Muthoot. Muthoot and Manappuram grew exponentially
until FY12/13 owing to rising gold prices, significant branch expansion and strong
demand leading to increase in gold holdings in terms of tonnage as well. However,
growth was hampered due to falling gold prices and RBI’s regulatory changes (one
being LTV reduction to 60%) during FY14-15. Falling gold prices led to inability of
payment from customers and as auctioning of gold took place, there was fall in gold
holdings as well. Post that gold AUM grew at a stable pace after the incorporation of
regulations and related business model modifications. In terms of focus, Manappuram
started focusing on shorter tenure product i.e. 3 months to protect itself from gold price
fluctuations whereas Muthoot focused on relatively longer tenure product i.e. 12
months. In addition, Muthoot also shifted its focus to collecting monthly interest as
opposed to earlier phenomenon of bullet payment of both principal and interest at the
end of the tenure, which helped it keep in touch with the customer on regular basis.

After stabilised growth, gold AUM of both the companies again grew significantly in
FY20/21 majorly on the back of increased gold prices. Gold holdings in terms of
tonnage did not grow at the same pace. However, growth was again impacted in the
last 2 quarters of FY21 with decrease in gold prices. Manappuram’s gold AUM
declined in last 2 quarters mostly because of shorter tenure product wherein
customers had to pledge more gold to get the same amount of loan after the maturity.
Furthermore, owing to shorter tenure, most of the gold loan became due for maturity
and due to pandemic-related challenges and decline in gold prices, customers
defaulted on loans because of which the company had to classify the account as NPA
leading to the auctioning of gold. This also led to decline in growth in the gold tonnage
holding of Manappuram.

Chart 30: Significant branch presence; minimal increase in branch strength after
branch expansion during initial periods
5,000 Gold Branches
4,500
4,632
4,632

4,625
4,607
4,573
4,540

4,537
4,536

4,000
4,502
4,480
4,325
4,307
4,275
4,270

4,245
4,082

3,500
3,678

3,531

3,529

3,524

3,524

3,524
3,000
3,524

3,524
3,463
3,380
3,372
3,330
3,293

3,293
3,293

3,293

3,293

2,500
2,908
2,733
(Branches)

2,000
2,064

1,500
1,605

1,000
1,005
436

500
985
707

645

0
FY09

FY11
FY12
FY13
FY14

FY16

FY18
FY08

FY10

FY15

FY17

FY19
Q1 FY20
Q2 FY20
Q3 FY20
Q4 FY20

Q2 FY21

Q4 FY21
Q1 FY22
Q1 FY21

Q3 FY21

Muthoot Manappuram
Source: Company data, I-Sec research

28
Gold loan, October 18, 2021 ICICI Securities
Chart 31: Improving trend of cost to income on the back of scale and increased
productivity
70 Cost to Income (%)

60

64.1
63.8

60.3

58.7
50

52.0

48.9

48.4
40

46.7
45.6

45.3
43.5
43.4
42.6

41.6
41.6

40.2

39.2
37.7

37.7
37.6
30

37.0

36.2
(%)

33.2

32.6

32.5

32.0
31.6
31.3
29.9

28.9
28.2

27.5
20

27.1
27.0

24.7

24.1
10

0
FY10

FY13

FY14

FY15

FY16

FY17
FY11

FY12

FY18

FY19

Q1 FY20

Q2 FY20

Q3 FY20

Q4 FY20

Q3 FY21

Q4 FY21
Q1 FY21

Q2 FY21
Muthoot Manappuram
Source: Company data, I-Sec research; Note: As per IND-AS accounting since FY18

Strong growth in the Chart 32: Opex to AUM also decreasing; Muthoot’s operational efficiency better
AUM was led by due to higher scale and productivity
branch expansion in 9 Opex to AUM
late 2010 and early 8

8.6

8.3
2020. Branch
8.0

7
7.7

7.7
7.7

7.6
7.6
7.6

7.2
expansion decreased 6

6.8
6.8

6.4
6.3

post regulatory 5

5.5
5.3

5.3
changes. The focus

5.1
5.1
4.9

4.9
4

4.9
4.9
4.8
4.8

4.7
(%)

4.5
4.5

4.4
shifted to branch level
4.1

4.1

4.0
4.0

3
3.8

3.6
3.6
productivity that led to 2
decrease in operating 1
expenses. 0
FY10

FY13

FY14

FY15

FY16

FY17
FY11

FY12

FY18

FY19

Q1 FY20

Q2 FY20

Q3 FY20

Q4 FY20

Q3 FY21

Q4 FY21
Q1 FY21

Muthoot Manappuram Q2 FY21

Source: Company data, I-Sec research;
Note: As per IND-AS accounting since FY18, Quarterly ratios are annualized

There was minimal increase in branches post significant expansion between FY08 and
FY13. Nevertheless, Muthoot’s branch network is higher than Manappuram’s. While
the pace of branch expansion has slowed down, the productivity per branch has
increased which is reflected in decreasing cost to income and opex to AUM ratios with
Muthoot being better than Manappuram. This highlights the fact that massive branch
expansion in early 2010 leading to huge branch network has been sufficient to achieve
significant size and growth. Gold finance business is operationally intensive wherein
the companies need to build storage, security, gold appraisal and auction capabilities
for better customer experience. Furthermore, since customers tend to visit nearby
branches to get the gold loan, it is important to have those branches nearby to
customers.

29
30
0%
20%
40%
50%
70%
90%
100%

0%
10%
20%
30%
40%
60%
80%
90%
10%
30%
60%
80%

50%
70%
100%
FY12 69% 17% 10%
4% FY12 64% 18% 13%5%
19% 11%5% 65% 17% 13%5%

distribution
FY13 65% FY13
South

South
FY14 59% 22% 13%6% FY14 65% 16% 14%5%
FY15 57% 22% 15% 6% FY15 65% 16% 14%5%
FY16 54% 22% 17% 7% FY16 64% 16% 15% 5%
FY17 52% 23% 18% 7% FY17 62% 17% 15% 6%

North
North

FY18 50% 23% 19% 8% FY18 62% 17% 15% 6%

geographical distribution
Gold loan, October 18, 2021

FY19 49% 23% 20% 8% FY19 61% 17% 16% 6%

Source: Company data, I-Sec research

Source: Company data, I-Sec research

Q1 FY20 49% 23% 20% 8% Q1 FY20 60% 17% 16% 7%
Q2 FY20 48% 23% 20% 9% Q2 FY20 60% 17% 16% 7%
23% 20% 9% 60% 17% 16% 7%

West
Q3 FY20 48% Q3 FY20
West

Q4 FY20 49% 23% 19% 9% Q4 FY20 60% 17% 16% 7%

Chart 33: Muthoot gold loan branches’

Q1 FY21 48% 23% 20% 9% Q1 FY21 60% 17% 16% 7%

Chart 35: Muthoot gold AUM geographical

Q2 FY21 49% 23% 19% 9% Q2 FY21 60% 17% 16% 7%
49% 23% 19% 9% 60% 17% 16% 7%

East
Q3 FY21 Q3 FY21
East

Q4 FY21 50% 22% 19% 9% Q4 FY21 60% 17% 16% 7%

Q1 FY22 50% 22% 19% 9% Q1 FY22 60% 17% 16% 7%

0%
20%
30%
50%
70%
80%
90%

10%
40%
60%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%

FY12 83% 5%8%4% FY12 73% 10% 12% 5%

continues to remain the largest contributor.

70% 14% 11%5%
distribution

FY13 75% 8%11%6% FY13

South

South

FY14 70% 10% 13%7% FY14 70% 14% 11%5%

FY15 68% 11% 13% 8% FY15 70% 14% 11%5%

FY16 70% 14% 9% 7%
FY16 65% 12% 15% 8%
FY17 68% 15% 9% 7%
FY17 64% 11% 15% 10%
North
North

FY18 67% 16% 9% 8%

geographical distribution

FY18 60% 13% 17% 10%

FY19 66% 16% 9% 8%

Source: Company data, I-Sec research

Source: Company data, I-Sec research

FY19 59% 13% 17% 11%

Q1 FY20 66% 16% 9% 9%
Q1 FY20 57% 14% 18% 11%
Q2 FY20 65% 17% 10% 9%
Q2 FY20 58% 14% 17% 11%
63% 17% 10% 10%
West

Q3 FY20
West

Q3 FY20 58% 14% 17% 11%

Q4 FY20 63% 17% 10% 10%
Q4 FY20 58% 14% 16% 12%
Q1 FY21 63% 17% 10% 10%
Q1 FY21 58% 14% 16% 12% Q2 FY21 63% 17% 10% 10%
Chart 34: Manappuram gold loan branches’

Q2 FY21 58% 14% 16% 12% 63% 17% 10% 10%

East

Q3 FY21
East

Chart 36: Manappuram gold AUM geographical

Q3 FY21 58% 14% 15% 13% Q4 FY21 63% 17% 10% 10%
Q4 FY21 57% 15% 15% 13% Q1 FY22 63% 17% 10% 10%
ICICI Securities

geographies as well with North being the second largest geography. Muthoot has
demand is the highest. Now, the companies have been diversifying into other
branch network and gold loan portfolio in the Southern part of India, wherein gold loan
Both Muthoot and Manappuram being South-originated players initially grew their

diversified faster than Manappuram in other geographies in terms of AUM. Yet, South
 Gold loan, October 18, 2021 ICICI Securities
Chart 37: Increasing online gold loan operations; Manappuram better than
Muthoot
70 Online gold loan as %age of total AUM
60

63.0

61.0

59.0
50

54.0

53.0
48.0
40

44.0
43.0
39.0
30

37.0
(%)

32.0

28.5
20

24.0
20.3
19.7
19.2
18.5
17.5

17.5

17.5
17.5
10

17.0
12.0
10.0
0 FY17

FY19
FY18

Q1 FY20

Q3 FY20

Q1 FY21

Q2 FY21

Q4 FY21
Q2 FY20

Q4 FY20

Q3 FY21

Q1 FY22
Muthoot Manappuram
Source: Company data, I-Sec research

Traditional gold loan players have introduced online gold loan to provide better
customer experience. Manappuram had started this service earlier than Muthoot and
hence, it has a higher share of these service users. Customers can use this service
either through searching on web or downloading individual companies’ online gold
loan application in mobile. Muthoot’s mobile application name is “iMuthoot”. On the
other hand, Manappuram’s mobile application name is “Manappuram OGL”. During
lockdown, these companies also started services wherein customers could apply for
fresh loan from their homes. Muthoot offers this service through its application called
“Loan@home”, whereas Manappuram offers this service through its application named
“Door Step Gold Loan”.

Table 8: Variants of online gold loan

Existing customer with gold already pledged in nearby branch Completely new customer who wants to apply for gold loan
Register in the nearby branch to use the online gold loan facility Fill in the details in the application such as first time registration, loan
amount needed etc. It will show the amount of gold needed to get that
amount of loan.
Customer can use the facility by making interest payment, principal Customer can schedule an appointment wherein an executive from
payment or part payment through any payment gateway available in the the nearest branch will visit the customer’s home and complete all the
app formalities such as KYC, gold appraisal and check the gold weight.
Customer can apply for a top-up loan by using this service by looking at Once the formalities are complete, the loan amount will be disbursed
his or her eligibility. The loan amount will be disbursed directly into the directly into customer’s account
account
Customer can also apply for renewal and get the amount disbursed
directly without going to the branch
Source: Company data, I-Sec research

31
Gold loan, October 18, 2021 ICICI Securities
Chart 38: Higher yield than other secured segments; Manappuram’s yields
higher due to shorter tenure
30 Yield on AUM

25

27.4
27.2
24.3

25.0
24.9
24.8

24.8
24.8
24.7

24.6
24.6
24.5
23.9

23.5
23.5

23.5
20

22.9

22.7
22.7

22.4

22.3
22.3

22.3
22.3

22.0
21.8

21.7
21.3
20.9

20.9
20.5
19.8

20.3

20.1
19.6

18.8
15

(%) 10

0
FY10

FY12

FY13

FY14

FY15

FY18

FY19
FY11

FY16

FY17

Q1 FY20

Q2 FY20

Q1 FY21

Q2 FY21

Q3 FY21
Q3 FY20

Q4 FY20

Q4 FY21
Muthoot Manappuram
Source: Company data, I-Sec research
Note: As per IND-AS accounting since FY18, Quarterly ratios annualised

By virtue of lending to relatively weaker credit profile of customers and shorter tenure
products, the gold loan business is a high yielding business. Manappuram’s yields are
higher than Muthoot’s mostly because of shorter tenure product offering. Yields fell
amidst falling growth during FY13-15 leading to interest reversals, post which they
started rising as and when growth returned. Yields increased significantly in FY20/21
again on the back of strong growth.

However, owing to the increased competition in high-ticket size loan segment,

Manappuram has started lowering its interest rates for higher ticket sized loans post
Q1FY22. This will lead to lowering of yields and higher growth for Manappuram.

Chart 39: Improving cost of funds; Muthoot enjoying better rates

16 Cost of funds
14
15.1
14.6

12
13.0
12.0

12.5
12.1

12.1

11.9
11.2

11.7

11.6

10
11.2
10.8
10.8

10.3

8
9.6
9.5
9.4
9.3
9.3

9.3

9.3

9.2
9.2

9.2

9.1
9.1
8.9

8.9

8.9
8.9

8.9

8.8

8.5

8.2
8.2
(%)

6
4
2
0
FY10

FY12

FY13

FY14

FY15

FY18

FY19
FY11

FY16

FY17

Q1 FY20

Q2 FY20

Q1 FY21

Q2 FY21

Q3 FY21
Q3 FY20

Q4 FY20

Q4 FY21

Muthoot Manappuram
Source: Company data, I-Sec research
Note: IND-AS fiscal 2018 onwards and quarterly/half-yearly numbers are annualised

32
Gold loan, October 18, 2021 ICICI Securities
Chart 40: Muthoot- borrowing mix
NCDs Sub-debt Bank/FI Commercial Paper Assignments ECB Others

100%

15%

10%

11% 16%

8% 16%
15%
90%

9% 16%
18%

11% 17%
17%
17%

13% 19%
10% 20%
30%

14%
37%
80%

42%

41%
70%

14%

57%
41%

44%
60%

47%
49%

49%

40%
14%

43%
42%

44%
10%
50%

42%
39%
14%

40%
40%

9%
30%

55%
47%

46%

41%
20%
35%

33%
32%

30%
30%

30%
30%

29%

28%
27%
27%

26%
24%
10%
0%

Q1 FY 22
Q1 FY20

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

Q2 FY20

Q3 FY20

Q4 FY20
Source: Company data, I-Sec research

Chart 41: Manappuram- borrowing mix

NCDs/Sub-debt Bank/FI Commercial Paper Assignments ECB Others

100%
11%

7% 13%

8%13%
11% 15%

9% 14%

6%14%
17%

6% 18%
90%
25%

25%

23%
28%

24%
25%
80%
70%

31%
78%

60%

42%
82%
79%

47%
51%
77%

55%
51%

50%
64%

56%
53%

62%

63%
64%

40% 64%
30%

45%
20%

37%
32%
29%
24%

22%
20%

19%

10%
18%

17%
17%

17%

FY19 13%
FY16 12%

Q3 FY20 11%
Q1 FY20 10%

Q2 FY20 8%

0%

Q1 FY 22
Q4 FY20

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21
FY12

FY13

FY14

FY15

FY17

FY18

Source: Company data, I-Sec research

Manappuram enjoyed better cost of funding historically mostly because of larger share
of bank loan in borrowing mix. Muthoot has had a relatively diversified borrowing mix
with NCD and sub-debt constituting a significant chunk along with bank borrowings.
These NCDs and sub-debts were issued at a higher rate than bank loan leading to
higher cost of funding. Lately, cost of funding of Muthoot has been better than
Manappuram mostly because of better credit rating, increased share of bank funding
and ECB. Manappuram, on the other hand, has decreased its reliance on bank
borrowing with diversification into ECB and NCD/sub-debt. Overall cost of funding of
both the companies has improved with growth. Cost of borrowing for both the
companies further decreased in FY21 due to low interest rate environment in the
economy.

33
Gold loan, October 18, 2021 ICICI Securities
Chart 42: Manappuram’s gross spread higher due to higher yields
18 Interest spread
16

16.2

16.0
14

15.8

15.8

15.7
15.5
15.4
15.3

15.3

15.2
15.2
15.1

14.7
14.1
14.1
12

13.8
13.6

13.4
13.2
12.8
12.7
12.3

12.1

11.9
10

11.5

11.5
11.0

10.2
8

(%)

8.2

8.2
8.5

8.1

8.0
7.9
6

7.5

7.1
4
2
0
FY10

FY12

FY13

FY14

FY15

FY18

FY19
FY11

FY16

FY17

Q1 FY20

Q2 FY20

Q1 FY21

Q2 FY21

Q3 FY21
Q3 FY20

Q4 FY20

Q4 FY21
Muthoot Manappuram
Source: Company data, I-Sec research
Note: IND-AS fiscal 2018 onwards and quarterly/half-yearly numbers are annualised, Interest spread = Yield on
AUM – Cost of funding

Chart 43: Trend in NIMs

20 NIMs
18
16 18.2
17.2

17.0

16.9

16.9
16.8
16.8
16.7

16.6
16.6

16.4
16.4

16.2
16.1
14

15.9
15.9

15.8
15.1

14.5
14.3

14.3
14.2
12

13.9
13.5
13.4
12.9
12.3

10
11.3
11.0

10.7

10.6
10.6

8
(%)

9.9

9.5
9.5
9.4

6
4
2
0
FY10

FY11

FY13

FY14

FY15

FY17

FY18
FY12

FY16

FY19

Q1 FY20

Q2 FY20

Q4 FY20

Q1 FY21

Q2 FY21

Q4 FY21
Q3 FY20

Q3 FY21
Muthoot Manappuram
Source: Company data, I-Sec research
Note: IND-AS fiscal 2018 onwards and quarterly/half-yearly numbers are annualised, NIM = (Interest Income-
Interest expense)/average AUM

Gross interest spreads and NIMs mirror the yield and cost of funding movement.
Manappuram’s interest spread and NIMs are higher than Muthoot’s on the back of
higher yields.

34
 (Rs mn) (%) (%)
Gold loan, October 18, 2021

0
20
40
80

60
100
120
0
1
2
3
4
5
6
7
8
9
0
10
20
30
50
70

40
60

46 4.9 43.4
FY10 26 FY10 FY10
7.6 42.6
58 4.1 37.7
FY11 37 FY11 FY11
7.6 45.6
66 4.0 37.0
FY12 FY12 FY12
40 6.8 41.6
64
FY13 3.8 37.6
30 FY13 FY13
6.3 63.8
51
FY14 25 4.5 46.7
FY14 7.7
FY14 64.1
Note: IND-AS fiscal 2018 onwards

55
FY15
Muthoot

Muthoot

Muthoot
28 5.1 52.0
FY15 7.7
FY15 60.3

Source: Company data, I-Sec research

Source: Company data, I-Sec research

Source: Company data, I-Sec research

57
FY16 31 4.8 43.5
FY16 8.0
FY16 58.7
Chart 45: Trend in opex to AUM

63
FY17 34 4.8 36.2
FY17 7.6
FY17 41.6
67
FY18 35 4.7 29.9
FY18 8.6
FY18 48.9
75
FY19 38 4.9 33.2
Opex to AUM

78
FY19 8.3
FY19 48.4
Cost to Income

Q1 FY20 39 4.5 32.6

77 Q1 FY20 7.7
Q1 FY20 45.3
Q2 FY20 44
4.4 27.0

Gold AUM per branch

Q2 FY20 Q2 FY20
Chart 44: Cost to income has gradually improved

83 7.2 40.2
Q3 FY20 46
4.9 28.2
90 Q3 FY20 6.8
Q3 FY20 39.2
Q4 FY20

Manappuram
Manappuram

48

Manappuram
5.3 32.5
89 Q4 FY20 6.4
Q4 FY20 37.7
Q1 FY21 50
3.6 24.7
100

Note: IND-AS fiscal 2018 onwards and quarterly/half-yearly numbers are annualised
Q2 FY21 Q1 FY21 5.1
Q1 FY21 31.3
56
107 4.1 27.1
Q3 FY21 Q2 FY21 5.3
Q2 FY21 31.6
57
112 3.6 24.1
Q4 FY21 Q3 FY21 4.9
Q3 FY21 28.9
54
113 4.0 27.5
Q1 FY22 47
Q4 FY21 5.5
Q4 FY21 32.0
Chart 46: Muthoot’s AUM per branch better indicating higher productivity
ICICI Securities

35
Gold loan, October 18, 2021 ICICI Securities
Muthoot’s operating efficiencies are better than Manappuram’s because of increased
productivity, which can also be seen in the movement of AUM per branch. In recent
quarters of FY20/21, operating expense has reduced even more on the back of cost
cutting measures taken by the companies amidst covid. Had Manappuram’s
productivity (in terms of AUM per branch) been same as Muthoot’s, Manappuram
would have been earning RoA of 7.5-9%, assuming everything else remains constant.

Chart 47: Trend in credit cost

1 Credit cost

1.1

1.0
1

0.8

0.8
0.8
0.8

0.7
1
0.7

0.7

0.7
(%)

0.5
0

0.5

0.5

0.5

0.5
0.4

0.4
0.4

0.3
0.3
0.3
0

0.3

0.3
0.3
0.1

0.2
0.2

0.2

0.2

0.1

0.0

0.1
0.2

0.0

0.1

0.1
0
FY10

FY12

FY13

FY14

FY15

FY18

FY19
FY11

FY16

FY17

Q1 FY20

Q2 FY20

Q1 FY21

Q2 FY21

Q3 FY21
Q3 FY20

Q4 FY20

Q4 FY21
Muthoot Manappuram
Source: Company data, I-Sec research
Note: IND-AS fiscal 2018 onwards and quarterly/half-yearly numbers are annualised

Chart 48: Trend in GNPA

5.0 GNPA
4.5
4.0
4.4

3.5
3.0
3.4
3.2

2.5
2.9

2.7

2.6
2.5

2.0
(%)

2.2

2.2
2.1
2.0

2.0
1.5
2.0

1.9

1.9
1.0
0.5

1.3

1.3
1.3
1.3
1.2

1.2
1.2

1.2

1.1
1.1

0.5
1.0

0.9

0.9
0.3
0.3
0.6
0.6

0.7

0.6
0.7

0.5

0.5

0.0
FY10

FY12

FY13

FY14

FY16

FY17

FY18

FY19
FY11

FY15

Q2 FY20

Q3 FY20

Q4 FY20

Q2 FY21

Q3 FY21

Q4 FY21

Q1 FY22
Q1 FY20

Q1 FY21

Muthoot Manappuram
Source: Company data, I-Sec research
Note: IND-AS fiscal 2018 onwards and quarterly/half-yearly numbers are annualised

While GNPAs of gold financing companies can be volatile, the ultimate credit cost
remains very low because of the liquid nature of collateral, therefore, supporting the
profitability. GNPAs tend to vary mostly because of volatility in repayment behavior of
customers. Muthoot’s GNPA is generally higher than Manappuram because it
focusses on longer tenure product and keeps the auctioning of the gold as last resort
as it prefers to work with borrowers and give them time to make the payment. On the
other hand, Manappuram’s focus is on 3-month product and it generally auctions the
gold if the customer does not make the payment.

36
 Gold loan, October 18, 2021 ICICI Securities
Table 9: Two different business models of Muthoot and Manappuram
Muthoot (12 months) Manappuram (3 months)
Gold value 100 100
LTV 75% 75%
Gold loan 75 75
Interest rate 24% 24%
Interest cost* 24 7.5
Total Principal + Interest 96 82.5
Source: Company data, I-Sec research; *Includes interest outgo of 2 months during auction period

Table given above highlights the product focus of both the companies in terms of
tenure. Focusing on shorter tenure product allows Manappuram to maintain lower
credit exposure (as seen in above table) and lower LTV, which protects it from large
fluctuations in gold prices.

Table 10: Trend in auctioned gold jewelry and proceeds from it

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Q1 FY22
Muthoot
Loan Accounts Auctioned (Mn) 7,14,014 6,48,123 9,05,056 2,55,852 5,40,858 3,67,087 2,02,330 49,915
Outstanding Due (INR m) (inc interest) 37,347 32,043 46,911 12,994 27,168 15,185 9,132 3,853 350
Realized on auction of gold jewelry 34,293 27,879 38,800 11,847 25,177 14,000 8,548 3,255
Profit (Loss) % -8% -13% -17% -9% -7% -8% -6% -0
Auction/AUM 17% 14% 19% 5% 9% 5% 2% 1% 0.1%
Manappuram
Loan Accounts Auctioned (Mn) 5,66,116 3,47,845 7,02,038 3,05,439 3,32,767 1,81,555 48,026 74,553
Outstanding Due (INR m) (inc interest) 31,343 16,004 24,209 10,756 10,172 4,759 1,376 4,819 15,000
Realized on auction of gold jewelry 26,100 13,545 22,095 10,704 10,586 5,155 1,506 4,464
Profit (Loss) % -17% -15% -9% 0% 4% 8% 9% -7%
Auction/AUM 38% 17% 24% 10% 9% 4% 1% 3% 9%
Source: Company data, I-Sec research; *Includes interest outgo of 2 months during auction period

As can be seen in the above table, historically, Manappuram’s auctioned gold loan as
a percentage of AUM has been higher than Muthoot’s. However, that has been
As per IND-AS coming down regularly since FY18 for both Muthoot and Manappuram. However,
methodology, wherein
auctions increased for Manappuram by multi-fold in Q1FY22 as loans came for
provisions are made
repayment earlier due to shorter tenure and fall in gold prices which led to customers
on the basis of
defaulting and hence, leading to high auctioning during the quarter.
expected credit loss,
the credit cost has
Muthoot’s GNPA increase in FY18 is mostly because of migration to 90dpd recognition
gone down further as
of NPAs as opposed to 120 dpd earlier in 2017. There was also some problem in one
expected ultimate
credit loss on gold of the product segments, which was subsequently called off. For gold financing, most
loan is relatively lower provisions are generally towards standard assets as write-offs are low in this business
than other asset as observed in the past. Consequently, increase in credit cost in FY16 and FY17 for
classes. Muthoot was because of increased provision on standard assets.

Credit cost has increased a bit in recent quarters mostly because of covid. It is higher
for Manappuram as its standalone book also includes vehicle-financing constituting
around 5-7% to standalone AUM wherein the company faced asset quality challenges
in line with the industry. However, overall credit cost remains well in control.

37
Gold loan, October 18, 2021 ICICI Securities
Chart 49: Muthoot’s LTV is generally higher
80.0 Average LTV

70.0

75.0
68.3

71.1
71.0
60.0

65.1
65.0

65.0
63.0
61.4

61.0
59.0
58.6
50.0

57.0
55.2
40.0

(%)
30.0
20.0
10.0
0.0

FY20
FY19

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21

Q1 FY22
Muthoot Manappuram
Source: Company data, I-Sec research

Chart 50: Increasing ticket size, Muthoot’s even higher

70.0 Average ticket size

60.0

61.9
60.6
50.0

53.4
50.8
40.0
47.0

46.5

46.3
43.0
42.7

42.6
41.7
38.0

38.5
30.0
36.5
(Rs '000)

35.3
32.9

32.7
32.6

20.0

10.0

0.0
FY 18

FY 19

Q1 FY 20

Q3 FY 20

Q1 FY 21

Q2 FY 21

Q3 FY 21
Q2 FY 20

Q4 FY 20

Muthoot Manappuram
Source: Company data, I-Sec research

Liquid nature of the collateral i.e. gold protects companies from ultimate credit loss.
Low LTV (typically less than 75%) protects them from sudden drop in gold prices.
Muthoot increased its LTV in recent quarters because of increased competition.
Furthermore, the portfolio is granular as average ticket size is low and therefore
leading to diversification of risk amidst larger retail client base. Average ticket size has
been on increasing trend amidst increase in gold prices.

38
Gold loan, October 18, 2021 ICICI Securities
Chart 51: Consistently earning high RoAA after blip during regulatory changes
10.0 RoAA
9.0
Due to higher yields
8.0

8.8
and lower credit cost 7.0
along with controlled

7.5

7.2
7.2

7.1
6.0

7.0

6.9
6.6

6.6
6.6
operating cost, gold

6.4
6.2
6.1
5.0

6.0
6.0

5.8
5.8
5.8

5.7
5.5

5.4
financiers enjoy high

(%)
4.0

5.0
4.9

4.9
4.8
4.5

4.6
profitability.

4.1
3.0

3.8
Profitability took a dip 2.0

3.0
2.9
2.8

2.6
2.4
during FY13-16 owing 1.0

1.7

1.9
to lower yields and 0.0

FY13

FY14

FY15

FY16

FY17

FY18

FY19
FY10

FY11

FY12

Q1 FY20

Q2 FY21

Q3 FY21

Q4 FY21
Q2 FY20

Q3 FY20

Q4 FY20

Q1 FY21
higher opex, which
was mainly in turn
because of lower
Muthoot Manappuram
growth. Post that, Source: Company data, I-Sec research
profitability has Note 1: IND-AS fiscal 2018 onwards and quarterly/half-yearly numbers are annualized
returned strongly. Note 2: RoA are calculated on average of end year half yearly total assets for quarters shown in above graph

Chart 52: Gold business is a high RoE business once operational difficulties are
Despite lower yields,
overcome and there is scale
Muthoot’s profitability
60.0 RoE
has been relatively
better than 50.0
51.5

Manappuram
47.9

40.0
historically mainly due
41.9

to better control in 30.0

33.7
operating cost.
30.8
(%)

30.2

29.4

29.4
29.2

28.9

28.7
28.4

28.2
28.0
27.9
27.5

27.2
26.7
26.3
20.0

25.8
24.8
24.0

22.4
22.3

20.8
19.5

19.4

In recent quarters,
19.3

19.3

19.2

10.0
15.1
14.3

Manappuram’s RoAA
12.6
10.6
8.6

9.2

and RoE have been 0.0

FY11

FY12

FY14

FY15

FY16

FY18

FY19
FY10

FY13

FY17

Q2 FY20

Q3 FY20

Q1 FY21

Q2 FY21

Q4 FY21
Q1 FY20

Q4 FY20

Q3 FY21
better than Muthoot
on the back of higher
interest spreads and
Muthoot Manappuram
NIMs.
Source: Company data, I-Sec research; Note 1: IND-AS fiscal 2018 onwards and quarterly/half-yearly numbers
are annualised; Note 2: RoE are calculated on average of end year half yearly total net worth for quarters shown
in above graph

39
 Gold loan, October 18, 2021 ICICI Securities
Chart 53: Comfortable and consistently increasing net worth supported by high
accruals
180 Netw orth
160
140

152.4
120

132.0
100

115.7

69.0
106.0

60.7
97.9
80

53.6
48.1
(Rs bn)

43.9
38.1
78.1
60

33.1
27.4
26.3
24.9
24.4

65.2
23.8
19.2
40

56.2
50.8
42.6
13.3

29.3

37.4
6.1
5.8
20
0 FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

Q2 FY20

Q4 FY20

Q2 FY21

Q4 FY21
Muthoot Manappuram
Source: Company data, I-Sec research

Chart 54: Trend in debt to equity

10 Debt to equity
9.0

8.9

Capital position of 9
gold financiers 8
6.6

remains healthy on
6.4

7
the back of healthy 6
4.6

accruals and is 5
4.0
3.9

3.8

expected to remain

3.3
3.3

3.3
3.2

3.2
3.2

3.2

3.2
3.2
3.1

4
(x)

3.0
3.0

2.9

2.9
2.8

2.7
2.7

2.7
2.7

2.6
comfortable going 3
ahead as well on the 2
back of stable growth 1
expectation of around 0
FY10

FY11

FY13

FY14

FY16

FY17

FY18

FY19
FY12

FY15

Q4 FY20

Q2 FY21
Q2 FY20

Q4 FY21
10-15%.

Muthoot Manappuram
Source: Company data, I-Sec research

Chart 55: Capital adequacy ratio well above regulatory minimum

40 CAR
34.0
30.3

35
29.0
28.1

27.4

27.3
27.1
27.0

26.5

26.4
26.3
26.3
26.1

26.0

25.9
25.7
25.6

25.5
24.9

30
24.8
24.8

24.7
24.7

24.5
24.0

23.7

23.4
23.3
23.3

22.9
22.7
22.5

21.7

25
19.6
18.3
15.8

20
(%)

15
10
5
0
FY11

FY13

FY14

FY15

FY16

FY19
FY12

FY17

FY18

Q1 FY20

Q2 FY20

Q3 FY20

Q2 FY21

Q3 FY21

Q4 FY21
Q4 FY20

Q1 FY21

Q1 FY22

Muthoot Manappuram
Source: Company data, I-Sec research
Note: IND-AS fiscal 2018 onwards

40
 Gold loan, October 18, 2021 ICICI Securities
Table 11: Du-pont analysis of Muthoot Finance (standalone)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Interest Income 22.8% 24.3% 20.2% 17.8% 16.3% 17.8% 19.5% 20.1% 19.6% 19.3% 18.0%
Interest Expense 10.4% 12.8% 10.7% 9.5% 8.0% 8.4% 7.9% 6.3% 6.5% 6.3% 6.5%
Net Interest Income 12.4% 11.6% 9.5% 8.2% 8.2% 9.4% 11.6% 13.9% 13.1% 13.0% 11.5%
Other Income 0.3% 0.2% 0.2% 0.2% 0.2% 0.3% 0.4% 0.5% 0.4% 0.4% 0.6%
Total Net Income 12.7% 11.8% 9.7% 8.4% 8.5% 9.7% 12.0% 14.3% 13.5% 13.4% 12.1%
Operating Expenses 4.8% 4.3% 3.7% 3.9% 4.4% 4.2% 4.3% 4.3% 4.5% 4.0% 3.1%
Pre Provision Operating Profit 7.9% 7.4% 6.1% 4.5% 4.1% 5.5% 7.6% 10.0% 9.0% 9.4% 9.0%
Provisions 0.3% 0.2% 0.3% 0.2% 0.1% 0.6% 1.0% 0.8% 0.1% 0.2% 0.2%
PBT 7.6% 7.2% 5.7% 4.3% 3.9% 4.9% 6.7% 9.3% 8.9% 9.2% 8.8%
Tax 2.7% 2.4% 1.9% 1.5% 1.4% 1.9% 2.6% 3.5% 3.2% 2.3% 2.3%
Reported PAT 4.9% 4.8% 3.8% 2.8% 2.6% 3.0% 4.1% 5.8% 5.7% 6.8% 6.5%
Leverage (average
10.5 8.7 7.9 6.9 5.6 5.0 4.8 4.3 3.9 4.1 4.2
assets/average equity) (times)
RoE 51.5% 41.9% 30.2% 19.5% 14.3% 15.1% 19.4% 24.8% 22.4% 28.3% 27.8%
Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018

Table 12: Du-pont analysis of Manappuram Finance (standalone)

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Interest Income 22.6% 26.3% 17.9% 17.4% 17.6% 18.9% 23.9% 20.8% 20.8% 20.2% 20.5%
Interest Expense 6.4% 11.0% 9.6% 8.7% 7.9% 7.6% 8.0% 5.7% 6.3% 6.7% 7.0%
Net Interest Income 16.1% 15.3% 8.3% 8.7% 9.7% 11.3% 15.9% 15.1% 14.5% 13.5% 13.6%
Other Income 0.4% 0.4% 0.4% 0.5% 0.3% 0.2% 0.1% 0.5% 0.4% 0.8% 0.5%
Total Net Income 16.5% 15.8% 8.7% 9.2% 10.0% 11.5% 16.0% 15.6% 15.0% 14.3% 14.1%
Operating Expenses 7.5% 6.6% 5.5% 5.9% 6.0% 6.7% 6.7% 7.6% 7.2% 5.8% 4.3%
Pre Provision Operating Profit 9.0% 9.2% 3.1% 3.3% 4.0% 4.7% 9.3% 8.0% 7.7% 8.5% 9.7%
Provisions 0.7% 0.4% 0.7% 0.4% 0.2% 0.3% 0.4% 0.3% 0.2% 0.4% 0.5%
PBT 8.2% 8.8% 2.5% 2.9% 3.7% 4.5% 8.9% 7.6% 7.6% 8.1% 9.2%
Tax 2.7% 2.9% 0.8% 1.0% 1.3% 1.6% 3.1% 2.6% 2.7% 2.2% 2.3%
Reported PAT 5.5% 6.0% 1.7% 1.9% 2.4% 2.9% 5.8% 5.0% 4.9% 5.9% 6.9%
Leverage (average
4.1 4.6 5.1 4.8 4.3 4.3 4.1 3.9 3.9 4.3 4.0
assets/average equity) (times)
RoE 22.3% 27.5% 8.6% 9.2% 10.6% 12.6% 24.0% 19.3% 19.3% 25.2% 27.7%
Source: Company data, I-Sec research

Table 13: Du-pont analysis of Chola (vehicle player)

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Interest Income 13.7% 14.6% 15.4% 15.4% 15.2% 15.1% 13.9% 13.2% 13.0% 13.4% 13.3%
Interest Expended 7.4% 8.6% 8.9% 8.9% 8.6% 7.9% 7.1% 6.7% 7.1% 7.6% 6.6%
Net Interest Income 6.3% 6.0% 6.5% 6.5% 6.6% 7.2% 6.8% 6.5% 5.9% 5.8% 6.7%
Income from Securitization 0.7% 0.2% 0.4% 0.6% 0.6% 0.8% 0.7% 0.0% 0.2% 0.4% 0.0%
Other Operating Income 0.6% 0.4% 0.4% 0.4% 0.4% 0.3% 0.2% 0.2% 0.6% 0.5% 0.4%
Other Income 0.2% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Net Income 7.8% 6.9% 7.2% 7.5% 7.6% 8.3% 7.7% 6.7% 6.7% 6.7% 7.1%
Operating Expenses 3.1% 4.0% 3.6% 3.3% 3.3% 3.3% 3.2% 2.8% 2.5% 2.6% 2.3%
Operating Income 4.7% 3.0% 3.6% 4.2% 4.3% 5.0% 4.5% 3.9% 4.2% 4.1% 4.9%
Provisions/write offs 3.1% 0.2% 0.8% 1.4% 1.4% 1.7% 1.0% 0.8% 0.6% 1.5% 1.9%
PBT 1.6% 2.8% 2.9% 2.8% 2.9% 3.4% 3.5% 3.1% 3.6% 2.6% 2.9%
Tax 0.5% 1.0% 0.9% 0.9% 1.0% 1.2% 1.2% 1.3% 1.3% 0.9% 0.8%
Extraordinary Items 0.3% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Reported PAT 0.8% 1.5% 1.9% 1.8% 1.9% 2.2% 2.3% 1.8% 2.3% 1.7% 2.2%
Leverage (times) 10.2 9.3 9.3 9.3 8.3 7.6 8.0 8.5 9.1 8.5 7.8
RoE 8.0% 13.9% 18.1% 17.1% 15.9% 16.6% 18.2% 15.3% 21.2% 14.7% 17.1%
Source: Company data, I-Sec research

41
 Gold loan, October 18, 2021 ICICI Securities
Table 14: Du-pont analysis of STFCL (vehicle player)
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Interest Income 12.3% 10.9% 11.2% 13.3% 14.3% 15.0% 13.1% 14.7% 15.2% 14.8% 14.1%
Interest Expended 7.6% 7.3% 7.1% 8.35 8.1% 8.0% 7.0% 7.1% 7.4% 7.5% 7.4%
Net Interest Income 4.8% 3.6% 4.1% 5.0% 6.2% 7.0% 6.1% 7.6% 7.8% 7.3% 6.6%
Other Income 5.7% 6.3% 5.0% 3.1% 1.5% 1.1% 1.3% 0.3% 0.2% 0.3% 0.3%
Net Income 10.5% 10.0% 9.1% 8.1% 7.7% 8.1% 7.5% 8.0% 7.9% 7.6% 6.9%
Operating Expenses 2.5% 2.1% 2.0% 2.0% 2.0% 2.1% 1.6% 1.8% 1.9% 1.9% 1.6%
Operating profit 8.0% 7.8% 7.1% 6.1% 5.7% 6.0% 5.8% 6.2% 6.1% 5.7% 5.3%
Provisions 1.8% 2.3% 2.1% 2.2% 2.3% 3.2% 3.3% 1.9% 2.4% 2.6% 2.6%
PBT 6.2% 5.6% 5.0% 3.9% 3.4% 2.8% 2.6% 4.3% 3.7% 3.1% 2.7%
Tax 2.1% 1.9% 1.6% 1.2% 1.1% 1.0% 0.9% 1.5% 1.2% 0.9% 0.7%
Reported PAT 4.1% 3.7% 3.4% 2.7% 2.3% 1.9% 1.7% 2.8% 2.5% 2.3% 2.0%
Leverage (times) 6.7 6.2 6.1 6.1 6.2 6.6 7.0 7.3 7.0 6.6 6.2
RoE 27.5% 23.1% 20.6% 16.4% 14.1% 12.2% 11.8% 20.0% 17.6% 14.9% 12.6%
Source: Company data, I-Sec research

Table 15: Du-pont analysis of CanFin (housing finance player)

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Interest Income 10.1% 11.2% 11.2% 11.2% 11.1% 10.9% 10.8% 10.2% 9.9% 10.2% 9.3%
Interest Expended 6.9% 7.9% 8.3% 8.5% 8.6% 7.8% 7.3% 6.7% 6.8% 6.8% 5.6%
Net Interest Income 3.2% 3.4% 2.8% 2.7% 2.5% 3.2% 3.5% 3.5% 3.1% 3.4% 3.7%
Other Income 0.2% 0.3% 0.4% 0.4% 0.4% 0.4% 0.4% 0.2% 0.1% 0.1% 0.1%
Net Income 3.5% 3.6% 3.2% 3.1% 2.9% 3.6% 3.9% 3.7% 3.2% 3.5% 3.8%
Operating Expenses 0.8% 0.9% 1.1% 0.9% 0.8% 0.7% 0.7% 0.6% 0.5% 0.5% 0.6%
Operating profit 2.7% 2.7% 2.2% 2.2% 2.1% 2.9% 3.2% 3.1% 2.6% 2.9% 3.2%
Provisions 0.1% 0.3% -0.0% 0.1% 0.2% 0.2% 0.2% 0.2% 0.0% 0.3% 0.3%
Extra-ordinary income 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PBT 2.6% 2.4% 2.2% 2.1% 1.9% 2.7% 3.0% 2.9% 2.6% 2.6% 2.9%
Tax 0.7% 0.7% 0.6% 0.6% 0.7% 1.0% 1.1% 1.0% 1.0% 0.7% 0.8%
Reported PAT 1.9% 1.7% 1.6% 1.5% 1.2% 1.6% 1.9% 1.9% 1.6% 1.9% 2.1%
Adjusted PAT 1.9% 1.7% 1.6% 1.5% 1.2% 1.6% 1.9% 1.9% 1.6% 1.9% 2.1%
Leverage (times) 7.6 7.6 9.2 11.8 11.6 11.6 12.4 11.4 10.5 10.1 9.1
RoE 14.3% 13.1% 14.6% 17.9% 14.0% 19.0% 23.9% 22.0% 17.0% 19.4% 19.4%
Source: Company data, I-Sec research

Table 16: Du-pont analysis of HDFC (housing finance player)

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Interest Income 11.2% 12.7% 12.8% 12.4% 12.1% 11.5% 11.1% 10.1% 10.4% 10.4% 9.4%
Interest Expended 7.0% 8.6% 8.9% 8.7% 8.4% 7.9% 7.5% 7.2% 7.3% 7.4% 6.2%
Net Interest Income 4.2% 4.1% 3.9% 3.8% 3.7% 3.6% 3.6% 2.9% 3.0% 3.0% 3.2%
Other Income 0.8% 0.7% 0.7% 0.6% 0.7% 1.2% 0.8% 2.3% 1.1% 3.6% 1.0%
Net Income 4.9% 4.8% 4.6% 4.4% 4.4% 4.7% 4.4% 5.3% 4.1% 6.6% 4.2%
Operating Expenses 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.6% 0.4% 0.3% 0.4%
Operating profit 4.6% 4.4% 4.3% 4.1% 4.1% 4.4% 4.1% 4.7% 3.7% 6.3% 3.8%
Provisions 0.1% 0.1% 0.1% 0.1% 0.1% 0.3% 0.3% 0.6% 0.2% 1.4% 0.6%
PBT 4.5% 4.4% 4.2% 4.0% 4.0% 4.1% 3.9% 4.0% 3.5% 4.9% 3.2%
Tax 1.2% 1.2% 1.1% 1.1% 1.2% 1.2% 1.2% 0.7% 0.9% 0.6% 0.6%
Reported PAT 3.3% 3.2% 3.1% 2.9% 2.8% 2.9% 2.7% 3.4% 2.5% 4.3% 2.6%
Leverage (times 6.6 7.1 7.2 7.0 7.3 7.5 7.5 6.2 5.3 5.1 4.7
RoE 21.7% 22.7% 22.1% 20.6% 20.3% 21.8% 20.2% 20.9% 13.5% 22.0% 12.3%
Source: Company data, I-Sec research

 Gold loan NBFCs have the highest NIMs due to shorter tenure product followed by vehicle finance and
home loans. Home loan NBFCs especially prime home loan ones have the lowest NIMs due to high
competition in the market.
 As far as operating expenses are concerned, home loans’ operating expenses are the lowest with vehicle
financiers having relatively higher operating expenses. Gold loan NBFCs have the highest operating
expenses indicating the operational intensive nature of the business.
 While credit cost of both home loan and gold loan NBFCs are lowest due to safer asset classes and
emotional value attached, vehicle loans’ credit costs are relatively higher.
 Consequently, RoAA and RoE of gold loan companies are higher than vehicle and home loan NBFCs.

42
Gold loan, October 18, 2021 ICICI Securities

Muthoot and Manappuram: Non-gold businesses

comparison
Table 17: Both companies are expanding their product suit by offering different
products through different subsidiaries
Asset class/Business Holding
Muthoot Finance
Muthoot Finance Gold loan Holding company
Muthoot Homefin# Affordable housing/LAP 100%
Belstar## MFI 70.01%
Muthoot Money@@ Vehicle loan 100%
Asia Asset Finance@ NBFC in Sri Lanka 72.92%
Muthoot Insurance Brokers Insurance Broking 100%
Muthoot AMC - 100%
Muthoot Trustee Pvt. Ltd - 100%
Manappuram Finance
Manappuram Gold loan, Vehicle Finance, Other loans Holding company
Manappuram Home Finance* Affordable housing/LAP 100%
Asirvad** MFI 97.51%
Manappuram Insurance brokers Insurance Broking 100%
Manappuram Comptech Tech solutions 99.81%
Source: Company data, I-Sec research
#Became subsidiary in fiscal 2016, ##Became subsidiary in fiscal 2017, @Became subsidiary in fiscal 2015,
@@Became subsidiary in fiscal 2019
*Became subsidiary in fiscal 2014, **Became subsidiary in fiscal 2015

Both Muthoot and Manappuram are expanding their product suit by entering different
asset classes either through inorganic or organic means. Two of the prominent asset
classes where they are diversifying into are MFI and affordable home loan segment.
Third focus segment is vehicle financing. The respective subsidiaries and asset
classes are shown in the above table. The companies are mainly diversifying as they
have surplus capital and also they believe they can grow in other segments using their
established branch network.

Chart 56: Muthoot AUM break-up trend Chart 57: Manappuram AUM break-up trend
Gold loan Muthoot Home (Home/LAP) Gol d lo an Manap puram Ho me (Home/LAP)
Asirvad (MFI) Veh icle loa n
Belstar (MFI) Muthoot money (vehicle) Other
Other 1% 1% 4% 3% 2%
100% 100% 5%
2% 4%
1% 2% 4%
5%
5% 6% 6% 9% 4% 6% 5%
5% 4% 3% 90% 1% 13%
2% 15% 22%
80% 80% 20% 22%
2%
70% 3% 2% 2%
60% 60%
98% 95% 50%
90% 88% 87% 89% 88%
40% 40% 81%
74% 70%
67% 67%
30%
20% 20%
10%
0% 0%
FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21
Source: Company data, I-Sec research Source: Company data, I-Sec research

43
Gold loan, October 18, 2021 ICICI Securities
Chart 58: Muthoot PAT break-up trend Chart 59: Manappuram PAT break-up trend
Muthoot Finan ce (G old) Muthoot Homefin (HFC) Other Asirvad (MFI)
Belstar (MFI) Muthoot Mone y (Veh icle ) Manappuram Home (HFC) Manappuram Finance (Gold & Vehicle)
Other 100% 5% 1%
100% 7% 16%
3% 3% 16%
80% 1%
90%
80%
60%
70% 96% 102% 98%
95%
40% 85% 84%
60% 99% 98% 96% 96% 97%
94%
50% 20%
40%
0% -2% -1%
30% -1% -1% -2% -1%
20% -20%
FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21
Source: Company data, I-Sec research Source: Company data, I-Sec research

Manappuram has diversified faster than Muthoot as its other asset classes now
constitute more than 25% whereas it is only 10-12% for Muthoot in terms of AUM.
However, in terms of profitability contribution, standalone gold loan companies
continue to constitute maximum i.e. more than 95%. In Manappuram group, Asirvad’s
share in profitability dropped in FY21 mainly because of low profits made due to high
credit cost owing to covid.

44
 Gold loan, October 18, 2021 ICICI Securities

MFI subsidiaries: Belstar and Asirvad

As far as Belstar, Muthoot’s subsidiary and Asirvad, Manappuram’s subsidiary are
concerned, the companies have gone through one major disruption of demonetisation
in FY17 and FY18. Currently, they are also undergoing challenges posed by covid.
While Asirvad faced challenges in terms of asset quality and profitability owing to
demonetisation, the impact on Belstar was minimal due to portfolio-level intricacies,
which is explained later in the report.

Despite challenges, MFI portfolios of Belstar and Asirvad have grown to Rs30.7bn and
Rs60.5bn as on Jun-21 as against Rs5.7bn and Rs18bn as on Mar-17, respectively.
Both Belstar and Asirvad delivered RoAA /RoE of 2-4.5%/14-28% except in FY18/21
(demon and covid-19 impact). In terms of credit cost, for Belstar, it has been in the
range of 1.1 to 2.7% of AUM during FY17-21, whereas, for Asirvad, it has been in the
range of 0.9-5.9%.

Table 18: Comparison on key parameters

Parameter Comparison
Asset quality Belstar’s performance has been more resilient as compared to Asirvad’s as Asirvad has been more vulnerable to
(delinquency/credit cost) external shocks which led to volatility in credit cost and asset quality
Yield Belstar’s yields are better than Manappuram
Cost of funding Cost of funding is lower for Belstar because of good credit rating
Operating efficiency Asirvad’s operating efficiency is better on account of scale and higher productivity
Profitability While Asirvad’s profitability is higher than Belstar’s supported by better operating efficiency and higher other
income, the same has been volatile and the company also incurred losses in few years/quarters. On the other hand,
Belstar’s performance on profitability has been stable with no surprises and more than 20% RoE except in FY21
Source: Company data, I-Sec research

Owing to more stable performance in terms of both profitability and asset quality,
Belstar appears to have run its MFI business better than Asirvad. Having said that,
Belstar’s portfolio remains small and concentrated in Tamil Nadu. Therefore, the ability
to profitably grow this book while diversifying into other geographies remains to be
seen.

Chart 60: Significant scale up of AUM

70 AUM
60
60.5
59.8

50
55.0

53.6
50.4
50.2

49.7
47.2

40
42.0
38.4

30
(Rs bn)

33.0

30.7
28.9
26.9

20
26.3

25.8
24.4

22.8
21.1
19.4
5.7

18.4
18.0
11.4

10
10.0
-

0
FY16

FY18

FY19
FY17

Q1 FY20

Q2 FY20

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21
Q3 FY20

Q4 FY20

Q1 FY22

Belstar Asirvad
Source: Company data, I-Sec research

Belstar and Asirvad grew significantly, as their AUM registered CAGR growth of 67%
and 45%, respectively during FY17-20, albeit on a low base. Asirvad has achieved
higher AUM than Belstar over the years. Growth was impacted in FY21 due to covid-

45
Gold loan, October 18, 2021 ICICI Securities
led macro-economic disruptions. However, growth returned as and when situation
normalised as witnessed in last 2 quarters of FY21 with Belstar and Asirvad’s AUM
achieving a half yearly growth of 23% and 20%, respectively, in H2FY21. However,
amidst second wave of covid, growth again took a hit as companies were focusing on
asset quality. Companies are expected to get back on growth trajectory with improving
economy.

Chart 61: AUM scale up aided by branch expansion

Belstar and Asirvad 1,200 Branch
have shown

1,144
1,000
significant progress in

1,062
1,047
1,042

1,042

1,041

1,036
1,027
961
AUM growth and

942
800

832
customer acquisition
763
led by branch 600

651
649
619
618
603
603
573
expansion. Asirvad 400

498
has grown more

441
400
346

rapidly than Belstar 200

155

235

with Belstar taking a

-

0
cautious approach
FY16

FY19
FY17

FY18

Q1 FY20

Q2 FY20

Q3 FY20

Q4 FY20

Q1 FY21

Q4 FY21

Q1 FY22
Q2 FY21

Q3 FY21
towards growth. Both
companies operate
their MFI business Belstar Asirvad
through their own Source: Company data, I-Sec research
branch network.
Chart 62: Trend in active customers
3.0 No. of active customers

2.4 2.4
2.5

2.0 1.8
1.5
1.5 1.4
1.2 1.2
(mn)

1.0 0.8
0.6
0.5
0.5 0.3
0.0

0.0
FY16

FY17

FY18

FY19

FY20

FY21

Belstar Asirvad
Source: Company data, I-Sec research

46
Gold loan, October 18, 2021 ICICI Securities
Chart 63: Belstar- geography-wise share in AUM Chart 64: Asirvad- geography-wise share in AUM
as on Mar-21, More concentrated as on Mar-21, relatively less concentrated
Belstar-Share in AUM as on Mar-21 Asirvad-Share in AUM as on Mar-21
Others 1% Other 11%
West Bengal 1%
Uttarakhand 1% Maharashtra 3%
Uttar Pradesh 5% Odisha 4%
Jharkhand 0%
Bihar 3% Rajasthan 5%
Rajasthan 3% Jharkhand 5%
Punjab 1%
Haryana 0% Uttar Pradesh 7%
Gujarat 4% Madhya Pradesh 6%
Odisha 3%
Chattisgarh 3% Kerala 6%
Madhya Pradesh 8% Karnataka 10%
Maharashtra 5%
Karnataka 9% Bihar 11%
Kerala 6% West Bengal 11%
Puducherry 1%
Tamil Nadu 47% Tamil Nadu 21%

0% 10% 20% 30% 40% 50% 0% 5% 10% 15% 20% 25%

Source: Company data, I-Sec research Source: Company data, I-Sec research

Asirvad is more geographically diversified than Belstar. Asirvad’s portfolio is mostly in

Southern and Eastern regions. On the other hand, Belstar is more concentrated in
Tamil Nadu. Over the years, it has decreased its portfolio concentration in Tamil Nadu
and is expected to keep doing so by diversifying into other geographies.

Chart 65: Belstar’s GNPA has been comfortable as against Asirvad which has
faced challenges during demonetization
5 GNPA
5
4.7

4
4

3.7
3.6
3
3
2.6
2.5

2.5

2
(%)

2.4
2.1

2
1.7

1.6

1
1.3
1.2
1.2

1.1

1.1
0.8

0.9

0.6
1.0

0.7

1
0.1

0.5

0.7

0.9
-

0
0.1
FY16

FY18

FY19
FY17

Q1 FY20

Q2 FY20

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21
Q3 FY20

Q4 FY20

Q1 FY22

Belstar Asirvad
Source: Company data, I-Sec research
Note: As per IND-AS since Mar-18

47
 Gold loan, October 18, 2021 ICICI Securities
Chart 66: Trend in NNPA
2 NNPA
1
1

1.4

1.3
1
1

0.9
(%)
1
0

0.5
0

0.3

0.1

0.1

0.1

0.3

0.1
0.1

0.1

0.1
0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0
0.0
-
0
FY16

FY18

FY19
FY17

Q1 FY20

Q2 FY20

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21
Q3 FY20

Q4 FY20

Q1 FY22
Belstar Asirvad
Source: Company data, I-Sec research
Note: As per IND-AS since Mar-18. Asirvad’s NNPA is nil due to 100% provisioning on GNPA.

Chart 67: Trend in credit cost mirrors the GNPA movement

In terms of asset
7 Credit cost
quality, it can be seen
that Asirvad has been 6

6.0
more prone to
5.9

5.2
external shocks than
4
Belstar.

4.3
3.7

3
(%)

2.5
1.1

1
1.6
1.5

1.2

1.1
1.0

1.3
1.3
0.9
-

0
FY17

FY18

FY19
FY16

H1 FY20

H1 FY21
H2 FY20

H2 FY21
Belstar Asirvad
Source: Company data, I-Sec research
Note: As per IND-AS since Mar-18, half-yearly/quarterly ratios have been annualized

48
 Gold loan, October 18, 2021 ICICI Securities
Table 19: Some external shocks impacting MFI industry since FY15
External shock News article Impact
The impact was negligible to low on Belstar as its asset quality (GNPA/credit cost)
remained intact in FY17 with some inch-up witnessed in FY18. Belstar was initially
acquired by Hand in Hand NGO which is associated with causes like financial inclusion,
Demonetisation announced in
Click here health, skill development etc. It provides training to women and inculcates saving habits in
November 2016
them. This along with large presence in Tamil Nadu, which was relatively less affected
Click here state during demon, helped the company navigate demon without any impact.
Drought-like situation in Southern
states such as Kerala, Karnataka and
On the other hand, Asirvad was severely impacted as its GNPA and credit cost increased
Tamil Nadu in FY17
in FY17. The impact also got spilled over to FY18 wherein the company wrote-off
significantly which also led to it reporting loss in that fiscal. The business also got impacted
because of drought-like situation in Southern states.
Farm loan waiver announcement by Click here Low impact on both companies
various states in FY18
Click here Low impact on both companies
Widespread flooding in Kerala,
Click here
cyclone Titli, and Gaja in FY19
Click here
Click here Low impact on both companies
Tea plantation slowdown and anti-
CAA disruptions in Assam in FY20
Click here
Some impact on Manappuram which led to slight inch-up in GNPA and credit cost
Click here
Political unrest in Karnataka and
floods in several states in FY20
Click here
Both the companies have been impacted with increase in delinquencies and credit costs
Covid challenges in FY21, natural owing to high provisioning
Click here
calamities

Source: Company data, I-Sec research; News/Media reports

Chart 68: Improving collection efficiency post second wave of covid-19,

Collection efficiency
however, yet to revert to pre-covid level
improved post being 120 CE (w ithout prepayment)
impacted by covid.
However, the same 100
95

105.0

101.0

again got disrupted

95.0
94

92.0
87.0

80
89

due to the advent of

85

second wave of covid.

71

60
70.0

While it is jumping
65
(%)

59.0

back strongly since 40

July 2021, the same
needs to sustain in 20
order to maintain
0
good asset quality in
Apr'21

Jul'21
Sep'20

Dec'20

May'21

Jun'21
Mar'21

FY22.
Belstar Asirvad
Source: Company data, I-Sec research

49
 Gold loan, October 18, 2021 ICICI Securities
Chart 69: Trend in yield
Yields are inherently 25 Yield on AUM
higher in this business

24.0
owing to the

22.8
20

22.4
21.9
21.8

21.0

20.6
unsecured nature.

20.0
19.1

20.0
19.3

18.4
18.4
18.2
However, Belstar’s 15

17.4
yields are higher than
Asirvad’s. Yields 10

(%)
contracted in FY21 on
the back of slow 5
growth due to covid.
-
The same is expected 0

FY17

FY18
FY16

FY19

H1 FY20

H2 FY20

H2 FY21
H1 FY21
to jump back with
growth.
Belstar Asirvad
Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualised

Belstar has better Chart 70: Trend in cost of funds

yields and cost of 16 Cost of funds
funding than Asirvad 14
leading to better
13.4

12
13.1

margins
11.6

10
11.5

11.2

11.2
10.9
10.8

10.7

10.7

10.5
10.4
10.3

9.8
9.6
8
(%)

6
4
2
-

0
FY17

FY18
FY16

FY19

H1 FY20

H2 FY20

H2 FY21
Belstar Asirvad H1 FY21
Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualised

Cost of fund for both companies has been gradually coming down with growth and
vintage. Belstar is enjoying better cost of funding than Asirvad on the back of good
asset quality performance, higher credit rating and benefit derived from the parent,
Muthoot Finance.

50
 Gold loan, October 18, 2021 ICICI Securities
Chart 71: Interest spread Chart 72: NIMs
14 Interest spread 16 NIMs
12 14

13.3
10.2

12.1

13.8
12.1
10 12

12.7

12.5
12.2
10.4

11.8
11.8
8.9
10

9.9
9.8

10.9
8

10.4
9.1
8.8

10.0
9.9
8

9.5
9.2

9.1
7.9

8.9
7.8
7.7

7.6
6

7.2
(%)

(%)
6
5.7

4
4
2 2
-

-
0 0
FY16

FY17

FY18

FY19

FY16

FY17

FY18

FY19
H2 FY20

H1 FY21

H2 FY21
H1 FY20

H1 FY20

H2 FY20

H1 FY21

H2 FY21
Belstar Asirvad Belstar Asirvad
Source: Company data, I-Sec research Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualized
Note: Gross interest spread =Yield on AUM – Cost of funding and NIM = (Interest Income-Interest expense)/Average of AUM

Gross interest spread and NIMs are in-line with yields and cost of funding as Belstar’s
spreads and NIMs are higher than Asirvad owing to high yields and better cost of
funding.

Chart 73: Asirvad having better cost to income (%) Chart 74: Similarly, Opex to AUM (%) is better for
having benefit of higher scale Asirvad than Belstar
70 Cost to income 9 Opex to AUM
58.9

8
7.0

60
7

7.9
60.1

7.5

7.3
57.2

50
7.0
6 6.9
54.6

54.3
52.5

6.6
6.5
6.4
48.0

6.2
50.0

47.6

40 5
46.8

46.5

5.8

5.8
44.3
41.3

5.1

5.0
4.9
30 4
(%)
(%)

34.0

33.8

3
20
2
10 1
-
-

0 0
FY16

FY17

FY18

FY19
FY16

FY17

FY18

FY19

H1 FY20

H2 FY20

H1 FY21

H2 FY21
H1 FY20

H2 FY20

H1 FY21

H2 FY21

Belstar Asirvad Belstar Asirvad

Source: Company data, I-Sec research.
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualized

Asirvad’s operational efficiency is better than Belstar’s, reflected in better cost to

income and opex to AUM. This is mostly on account of scale owing to higher
productivity.

51
Gold loan, October 18, 2021 ICICI Securities
Chart 75: Trend in PAT
Belstar 1,516 Asirvad
1,600
1,355
1,400
1,200
998
1,000
800
729

(Rs mn)
600 509 481
344 296
400 240 270
171 219
200 104
-
0
-200 -93 -50
FY16

FY17

FY18

FY19

H2 FY20

H1 FY21
H1 FY20

H2 FY21
Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018

Chart 76: Belstar’s RoAA has been more Chart 77: Trend in RoE mirrors the movement of
consistent, whereas, Asirvad has earned higher RoAA
RoAA during good economic environment
8 RoAA RoE

31.8
35
7

28.0
6 30
6.8

20.6
5 25

27.7
25.0
4

23.9
4.8

20
14.1

13.9
4.6
4.3

4.2
4.1

20.3
3 15
1.9
(%)

3.4

(%)

16.0

2
2.5

10
2.3

2.2

11.6

4.2
1.1

1
0.8

5
-

6.4
-3.4

-1.0
0
-

0
FY16

FY17

FY18

FY19

H1 FY20

H2 FY20

H1 FY21

H2 FY21
-0.4

-0.2

-1
FY16

FY17

FY18

FY19

H1 FY20

H2 FY20

H1 FY21

H2 FY21
-5
-10

Belstar Asirvad Belstar Asirvad

Source: Company data, I-Sec research. Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been
annualized annualized
Chart 78: CAR Chart 79: D/E
35 CAR 12 D/E

30 10
31.7

25
9.7
7.2
27.0

27.0
26.9

8
26.0

26.0

26.0

26.0

25.7
25.4
24.8

25.0

24.8

24.0
24.0

24.0

20
23.3
23.0

23.0
22.7
22.0

7.5

6
20.6

15
18.0

6.0
(x)
(%)

17.0

15.2

4
5.2

10
4.4

4.4
4.3
4.2

4.0

4.0
4.0

3.8
3.7
3.3

5 2
-
-

0 0
FY16

FY17

FY18

FY19

FY16

FY17

FY18

FY19
Q1 FY20

Q2 FY20

Q3 FY20

Q4 FY20

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21

Q1 FY22

H1 FY20

H2 FY20

H1 FY21

H2 FY21

Belstar Asirvad Belstar Asirvad

Source: Company data, I-Sec research. Source: Company data, I-Sec research.

52
Gold loan, October 18, 2021 ICICI Securities
Capital positions of both companies (Belstar and Asirvad) are at comfortable levels
with CAR being well above the minimum regulatory requirement. However, Belstar’s
debt to equity has increased a bit at around 5.2 times as on March 31, 2021. Owing to
the same, the company is planning a capital raise of around Rs3.5bn wherein the
parent, Muthoot Finance will infuse Rs2.8bn with remaining being infused by an
outside investor. On the other hand, for Asirvad, the management will infuse the
capital keeping in mind the growth requirement. If both companies continue to grow
around 15-20%, additional capital should not be required, as current level of debt to
equity will be maintained. However, if growth exceeds 30-40%, additional growth
capital will be required as per our expectations.

53
 Gold loan, October 18, 2021 ICICI Securities

HFC: Another diversified product

The credit cost in this segment has been minimal except for some inch-up in FY21
owing to increased provisioning. In terms of profitability, Muthoot Homefin has
delivered an average RoAA and RoE of 1.6% and 8.3%, respectively, during FY17-
FY21 with average being dragged down by weak performance in FY20/21. On the
other hand, Manappuram Home Finance, after turning profitable, has delivered an
average RoAA and RoE of 1.3% and 4.2%, respectively, during FY19-FY21. While
until now Muthoot Homefin delivered better return than Manappuram Home Finance,
since last 2 years, Manappuram Home Finance’s performance in terms of credit cost
and return on average assets has been better than Muthoot Homefin. Furthermore,
Muthoot Homefin portfolio’s growth has declined since last quarters of FY20. Having
said that, both companies’ portfolios still have limited years of operations. Therefore,
performance needs to be seen over a longer period. Following is a deep dive of
comparative analysis of both the companies in housing finance portfolio.

Table 20: Comparison on key parameters

Parameter Comparison
Asset quality GNPA metric of Muthoot Homefin has been better than Manappuram. In terms of credit cost as well, historically,
(delinquency/credit cost) Muthoot Homefin had better credit cost than Manappuram. However, over the last 2 fiscals, Muthoot Homefin’s credit
cost has shot up mostly owing to inch-up in asset quality metric and increased provisions of standard assets as well.
However, Manappuram’s credit cost has also increased, but not at the same pace as Muthoot
Yield Manappuram’s yields are better than Muthoot
Cost of funding Cost of funding is lower for Muthoot Homefin because of good credit rating
Operating efficiency Muthoot Homefin’s operating efficiency is better on account of scale
Profitability After incurring losses in initial fiscals due to high operating expenses which in turn was because of nascent stages of
operations, Manappuram Home Finance has achieved profitability and it has been earning better RoA and RoE than
Muthoot Homefin for the past 2 fiscals owing to better NIMs and credit cost
Source: Company data, I-Sec research

Chart 80: Muthoot Homefin’s AUM is higher than Manappuram Hom Fin
25,000 AUM

20,000
20,975

20,248
19,880

19,769

19,787

19,377
19,075

18,807

15,000
17,042

17,048
14,589
(Rs mn)

10,000
3,747
3,104

5,000
4,408

5,188

5,417

6,012

6,296

6,273

6,334

6,663

6,682
5,679

6,206
1,286
310

0
FY16

FY17

FY19
FY18

Q1 FY20

Q4 FY20

Q1 FY21

Q4 FY21

Q1 FY22
Q2 FY20

Q3 FY20

Q2 FY21

Q3 FY21

Muthoot Homefin Manappuram Home Fin

Source: Company data, I-Sec research

Muthoot Homefin grew faster than Manappuram Home Finance. However, Muthoot
Homefin growth slowed down in FY20 on the back of slowdown in the real estate
market leading to low disbursements. Growth of both companies got hampered in
FY21 due to covid as they were focusing on managing asset quality.

54
Gold loan, October 18, 2021 ICICI Securities
Chart 81: Branch presence mirrors the AUM size as Muthoot Homefin has higher
branch presence which is aiding higher AUM scale
120 Branch

100

108

108

108

108
107

107

107
103
101
96
80

60

68
35
35
40

47

47

47
47

47
46

46
24

35

35
20

19
9
-
0

FY17

FY19
FY16

FY18

Q2 FY20

Q4 FY20

Q2 FY21

Q4 FY21
Q1 FY20

Q3 FY20

Q1 FY21

Q3 FY21

Q1 FY22
Muthoot Homefin Manappuram Home Fin
Source: Company data, I-Sec research
Note: Most of the branches are co-located with gold loan branches

After significant branch expansion, the addition has been minimal since FY20
especially for Muthoot Homefin. Manappuram Home Finance grew its branch network
rapidly in Q1FY22 therefore equipping itself to achieve growth over the near term as
and when economy revives.

Chart 82: Manappuram Home Fin’s GNPA historically higher than Muthoot
Homefin due to challenges faced in book originated during initial stages
8 GNPA

7.0
6

6.0
5.9
5
5.7
5.1
4.8

4.9

4.9
4
4.8
4.6

4.3
(%)

4.0
3.9

3
2
1.9

1
0.4

1.7

1.7

1.7

1.6
0.7

0.8

1.1
1.5
-

-
0.0

0
FY16

FY17

FY18

FY19

Q1 FY20

Q2 FY20

Q3 FY20

Q4 FY20

Q1 FY21

Q2 FY21

Q1 FY22
Q3 FY21

Q4 FY21

Muthoot Homefin Manappuram Home Fin

Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018

55
Gold loan, October 18, 2021 ICICI Securities
Chart 83: Inch-up in credit cost for both companies during covid due to
increased provisioning
4.0 Credit cost
3.5

3.7
3.0
2.5

2.7
2.0

(%)
1.5

1.8

1.7
1.0

1.3

0.9
0.5

0.7

0.4
0.4

0.5
0.8

0.6

0.1

0.6
0.0

FY17

FY19
FY16

FY18

FY20

H1 FY21

H2 FY21
Muthoot Homefin Manappuram Home Fin
Source: Company data, I-Sec research

Muthoot Homefin has performed better in terms of asset quality management as its
GNPAs and credit cost have been lower than Manappuram. Manappuram’s GNPA
increased in FY18 mostly because of spill-over effect of demonetisation. Muthoot
Homefin’s credit cost increased in FY20 mostly because of slight inch-up in GNPAs
and low growth leading to lower base. Similarly, in FY21 as well, credit cost of both the
companies was higher mainly because of increase in GNPA and low growth.

Chart 84: Manappuram Home Fin earning higher yields

18 Yield
16
14

15.3
14.6

14.5
14.5
14.4
14.3

12
12.6

10
11.6

11.6

11.1
10.8
10.6

8
(%)

6
6.4

4
3.5

2
0
FY17

FY19

FY20
FY16

FY18

H2 FY21
H1 FY21

Muthoot Homefin Manappuram Home Fin

Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualized

Yields are slightly higher in general in comparison with standard housing loan yields
mainly because these companies are focused on affordable housing segment,
therefore, targeting tier 3 and tier 4 cities. Manappuram’s yields are higher than
Muthoot Homefin indicating the fact that it is lending to relatively riskier segment which
is also reflected in its GNPA metric.

56
Gold loan, October 18, 2021 ICICI Securities
Chart 85: Relatively higher cost of funding due to limited track record of
operations
12 Cost of funds

10

10.3
9.8

9.6
9.6

9.5

9.6
8

9.1
9.1

8.8

8.0
6

6.4
(%)

5.9
4

3.7
2

0 -

FY17

FY19

FY20
FY16

FY18

H2 FY21
H1 FY21
Muthoot Homefin Manappuram Home Fin
Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualised

With increased borrowings, cost of funding increased since FY19. However, the same
decreased in H2FY21 owing to decreased borrowings and low interest rate
environment. Muthoot Homefin’s cost of funding is relatively better than Manappuram
Home Finance. Owing to high yields, Manappuram Home Finance’s gross interest
spreads and NIMs are higher.

Chart 86: Trend in gross interest spread Chart 87: Trend in NIMs
7 Interest spread 10 NIMs
9
6
8

9.0
5.8

8.1
8.1

7
5.6

7.7

7.5
7.5
5.2

7.4
4.9

4 6
4.7
4.7

4.6
4.3

5
4.2

5.7
5.4

3
3.5
(%)

(%)

4.9

4.8
4.7

3 4.4
2.7

2
3.5
2.1
2.1

2
2.0

1
1
0 0
FY16

FY17

FY18

FY19

FY20

H1 FY21

H2 FY21

FY16

FY18

FY19

FY20
FY17

H1 FY21

H2 FY21
Muthoot Homefin Manappuram Home Fin Muthoot Homefin Manappuram Home Fin
Source: Company data, I-Sec research,
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualized
Note: Gross interest spread =Yield on AUM – Cost of funding and NIM = (Interest Income-Interest expense)/Average of AUM

57
 Gold loan, October 18, 2021 ICICI Securities
Chart 88: Cost to income Chart 89: Opex to AUM
180 Cost to income 20 Opex to AUM
160 18

19.3
162.7 16
140
120 14
100 12
10

100.4
80
97.0
(%)

(%)
90.1

10.2
89.3
8

5.6

5.6
60

8.4
6

68.3

3.5
65.6

3.1
3.0

7.1

2.7
2.6
40

56.5
56.1
51.2
4
47.7

5.7
46.6
42.1

36.8

5.4
20

4.4
2
0 0
FY16

FY17

FY18

FY19

FY20

H1 FY21

H2 FY21

FY16

FY17

FY18

FY19

FY20

H1 FY21

H2 FY21
Muthoot Homefin Manappuram Home Fin Muthoot Homefin Manappuram Home Fin
Source: Company data, I-Sec research.
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualised

Chart 90: Trend in PAT

Manappuram Home 400 363
Finance’s operating 350 318
expenses were higher 300
250 223
initially leading to
200
losses but the same
150 106
has come down with 68 85
(Rs mn)

100 57
growth. Muthoot 50 29 30 18
0
Homefin’s operating 0
efficiency is better -50 -11
because of higher -100 -54 -45
scale and productivity.
FY16

FY17

FY18

FY19

FY20

H1 FY21

H2 FY21
Muthoot Homefin Manappuram Home Fin
Source: Company data, I-Sec research

Chart 91: Muthoot HomeFin’s RoAA higher Chart 92: Trend in RoE mirrors the movement in
historically, Manappuram’s profitability increasing RoAA
with scale
4.0 RoAA 20.0 RoE
2.6
3.0 2.2 2.1 15.0
1.7 1.8 15.0
2.0 1.1 12.0
0.6 0.6 0.6 0.8
1.0 0.0 8.3
10.0 7.7
0.0 5.4
4.0
-1.0 -0.4 5.0 2.2 2.7 1.8 3.1
0.0
(%)
(%)

-2.0 -1.3
-3.0 0.0
-4.0 -1.1
-5.0
-5.0 -5.0
-6.0 -5.1 -10.0 -7.7
FY16

FY17

FY18

FY20
FY19

H1 FY21

H2 FY21
FY16

FY17

FY18

FY19

FY20

H1 FY21

H2 FY21

Muthoot Homefin Manappuram Home Fin Muthoot Homefin Manappuram Home Fin
Source: Company data, I-Sec research.
Note: IND-AS since fiscal 2018, half-yearly/quarterly ratios have been annualised

58
 Gold loan, October 18, 2021 ICICI Securities

Vehicle finance
Manappuram offers this product through its gold branches itself and it does not have
separate subsidiary for it while Muthoot Finance started its own subsidiary to offer this
product. In vehicle finance, Muthoot Money is clearly facing challenges in managing its
asset quality. Furthermore, Manappuram’s portfolio has relatively more vintage than
Muthoot Money. Therefore, Manappuram seems to be doing better in vehicle
financing. Having said that, Manappuram’s delinquency levels are also high, therefore,
it needs to be seen as to how Manappuram grows this book while managing the asset
quality as compared to other specialised vehicle finance players.
Chart 93: Manappuram’s vehicle finance AUM is higher as it started earlier;
growth declined during covid due to focus on collections
16,000 AUM
14,000

13,974
Muthoot Finance 12,000

13,444
13,178

12,703
12,271
started offering this 10,000

11,146

10,623

10,526

10,448
product through its

9,880
8,000
subsidiary in FY19.
(Rs mn)

6,000
3,058

6,254

4,000
1,286

5,090
On the other hand,

4,966
4,915

4,633
3,107

3,927

4,263

4,210

3,668

3,326
Manappuram has 2,000
65
-

been doing vehicle 0

FY16

FY17

FY18

FY19

Q1 FY20

Q2 FY20

Q3 FY20

Q4 FY20

Q1 FY21

Q2 FY21

Q3 FY21

Q4 FY21

Q1 FY22
financing for a while
through its
Standalone Company
Muthoot Money Manappuram
and same gold loan
Source: Company data, I-Sec research
branches.
Chart 94: Manappuram offering vehicle finance from more branches leading to
After growing rapidly, higher scale
both companies’ 250 Branches
vehicle financing
229

portfolios have been 200

222

222

222

222

222
222
214

declining in growth
198

since Q4FY20 owing 150

168

to covid-related
challenges that led to 100
asset quality issues.
76

50
24

24

24
24
21

21
20

18

18
50

5
1
0

0
36

0
FY16

FY17

FY18

FY19

Q2 FY20

Q4 FY20

Q1 FY21

Q3 FY21

Q1 FY22
Q1 FY20

Q3 FY20

Q2 FY21

Q4 FY21

Muthoot Money Manappuram

Source: Company data, I-Sec research; Note: Vehicle branches are co-located with gold loan branch

Both the companies offer this product through their gold loan branches. Manappuram
has been offering this product from more branches than Muthoot Finance resulting in
higher growth. However, both Muthoot and Manappuram have not been expanding
this product into other branches.

59
Gold loan, October 18, 2021 ICICI Securities
Chart 95: Asset quality worsening during covid-19; more for Muthoot
20 GNPA
18

18.9
16
14
12

9.7
10

6.6
8

(%)

5.6
5.0
8.6
6

2.7
4

1.9
1.5

4.8

3.6
2

0.0
-

-
-
0

FY17

FY18

FY19

FY20
FY16

Q4 FY21
Q1 FY21

Q1 FY22
Muthoot Money Manappuram
Source: Company data, I-Sec research
Note: IND-AS since fiscal 2018

Muthoot Money offers CV, CE, car and 2-wheeler financing whereas Manappuram
offers CV, PV and 2-wheelers with CV constituting around 70%. The whole vehicle
finance industry has been facing asset quality challenges since FY20 owing to weak
macro-economic environment. The same is true for these two companies as well.
However, while Manappuram has been able to control its asset quality in FY21 in
vehicle finance space despite decline in growth, Muthoot Money’s delinquencies have
increased manifold. It increased furthermore in Q1FY22 owing to low collections due
to the second wave of covid. The number is also appearing high because of decline in
growth in the portfolio leading to low base.

60
Equity Research INDIA
October 18, 2021
BSE Sensex: 61306
Muthoot Finance BUY
ICICI Securities Limited
is the author and
distributor of this report Leading Gold loan NBFC in India Rs1,553
Organised gold loan industry has high growth potential in India driven by
traditional high gold holdings in Indian households and potential market share
Initiating coverage
gain from unorganised players. The collateralised nature of the business results
in relatively low cost of credit and healthy RoEs. Muthoot Finance (Muthoot) is
Gold Finance among the best players in this segment driven by its strong historical track record
and established business network of branches and customers along with strong
brand and management.
Target price: Rs1,904  Encouraging historical track record. Muthoot’s standalone gold business interest
income has clocked 16% CAGR over the last 5/10 years. Net interest income has
Shareholding pattern clocked 21/18% CAGR over the last 5/10 years. This has been achieved with 10-
Mar Jun Sep
year average 0.4% cost of credit, 4.6% RoA and 24.4% RoE. Gold loan AUM has
'21 '21 '21 clocked 16.4/12.7% CAGR over the last 5/10 years. This has led to 35.7/22.4%
Promoters 73.4 73.4 73.4
Institutional
CAGR in earnings over the last 5/10 years despite disruptions like demonetisation
investors 22.6 22.7 22.4 and covid.
MFs and others 5.8 6.9 7.1
Insurance Cos. 0.3 0.3 0.7  …complimented by well-entrenched distribution and robust organisation
FIIs
Others
16.0
4.0
15.8
3.9
14.6
4.2
structure. Muthoot has 4,625 branches across India with 25,397 employees.
Source: BSE Business growth was achieved initially through branch expansion and later through
increase in efficiency. As such, AUM per branch has gone up from Rs57mn in FY16
to Rs114mn in FY21. We believe that continued traction in efficiency can lead to
Price chart higher growth of operating revenue compared to AUM. Strong marketing and brand
2000 recollection are additional business moats.
 Longer-tenure strategy is notable in contrast to Manappuram (shorter-tenure
1500
strategy). Muthoot’s average tenure of gold loan is around 6 months with ~53% of
1000 portfolio having ticket size of more than Rs100,000. This results in higher stickiness,
(Rs)

lesser auctions and ticks the box for more affluent sections of the society.
500
 Expect 18% PAT CAGR over FY21-25E. This will be driven by 16% CAGR growth
0 in AUM split between 2.1% CAGR in branches and 14.1% CAGR in AUM per
branch. PAT growth will be supported by strong and steady NIMs and increased
Apr-19

Apr-20

Apr-21
Oct-18

Oct-19

Oct-20

Oct-21

operating efficiencies. Average credit cost is expected to remain around 0.4% of

AUM. While gold will remain the core, non-gold segments provide a satellite
diversification strategy. Non-gold businesses’ share in total AUM/PAT has increased
to around 11/2.5% in FY21 from 5/2.3% in FY17.
 Initiate with BUY with target price of Rs1,904 based on 3.3x multiple of average
of FY23E and FY24E book value of standalone gold loan business. We value
subsidiaries at 1x P/B. Our multiple is based on reconciliation from (1) long term
residual valuation method (2) two stage Gordon growth model and (3) historical P/B
traded multiples.
Market Cap Rs629bn / US$8.3bn Year to Mar (SA) FY21 FY22E FY23E FY24E
Reuters/Bloomberg MUTH IN / MUTT.BO NII (Rs bn) 65 77 95 112
Shares Outstanding (mn) 401.2 Net profit (Rs bn) 37 43 54 62
52-week Range (Rs) 1605 / 1106 EPS (Rs) 93 108 134 156
Research Analysts:
Free Float (%) 26.6 % change YoY 23 17 23 17
Ansuman Deb FII (%) 14.6 P/E (x) 16.7 14.3 11.6 10.0
[email protected]
Daily Volume (US$'000) 23,778 P/BV (x) 4.1 3.5 2.9 2.4
+91 22 6637 7312
Kunal Shah Absolute Return 3m (%) 0.5 Credit cost (%) 0.2 0.3 0.4 0.4
[email protected] Absolute Return 12m (%) 40.1 GNPA (%) 0.9 1.8 2.1 2.2
+91 22 6637 7465
Sensex Return 3m (%) 15.3 RoA (%) 6.5 6.3 6.7 7.0
Vishal Singh
[email protected]
Sensex Return 12m (%) 51.1 RoE (%) 27.8 26.1 26.9 26.0
Note: SA = Standalone, P/E and P/BV ratios are calculated based on CMP
+91 22 6637 7312
Muthoot Finance, October 18, 2021 ICICI Securities

TABLE OF CONTENT

Company background ................................................................................................... 63

Technology and marketing achievements .................................................................. 68
Key subsidiaries ............................................................................................................ 70
Valuation ......................................................................................................................... 72
Key Risks in the Business ............................................................................................ 74
Financial summary (standalone) .................................................................................. 75
Financial summary (consolidated) ............................................................................... 77

62
Muthoot Finance, October 18, 2021 ICICI Securities

Company background
Muthoot Finance Limited (Muthoot Finance) was incorporated as a private
limited company on 14th March, 1997 and was converted into a public limited
company on November 18, 2008. The company was promoted by Late Mr. M G
George Muthoot, Mr. George Thomas Muthoot, Mr. George Jacob Muthoot and
Mr. George Alexander Muthoot, who collectively operated under the brand name
of “The Muthoot Group”. Muthoot Finance is the flagship company of the
Muthoot Group which is also involved in hospitality, healthcare, media,
education, information technology, foreign exchange, insurance distribution,
and money transfer business through its various other companies.
 Muthoot Finance is headquartered in Kerala and its operating history goes back to
1939 when Mr. M George Muthoot (the father of current promoter) founded gold
loan business under the heritage of a trading business established by his father,
Mr. Ninan Mathai Muthoot in 1887. The company provides loans to individuals
against gold as collateral. Typical customers of the company are small
businesspersons, vendors, traders, farmers and salaried individuals. Muthoot
Finance runs various gold loan schemes that are linked to LTV, tenure, ticket size
and interest rate. Muthoot offers loans of various tenures with maximum tenure
being of 12 months which is also its prime focus segment. The gold loan range
begins from Rs1,500 and there is no maximum limit.
 Over the years, the company has emerged as the largest non-bank gold loan
financier in India with standalone asset under management (AUM) of Rs526bn
and operations across 29 states/union territories through 4,600+ branches as on
March 31, 2021. Driven by excess capital and the need to deal with cyclicality in
gold loan business, the company started diversifying its lending business and
services over the years.

Table 1: Key milestones

Period Milestone
1887 Commenced operations as a trading business in a Kerala village
1939 Embarked on gold loan business
2001 Received the RBI license to function as an NBFC
2004 Received the highest rating of F1 from Fitch Ratings for short-term debt of Rs200mn
2005 Retail loan and debenture portfolio crossed Rs5bn
2007 o Retail loan portfolio crossed Rs14bn
o Net owned funds crossed Rs1bn
o Accorded NBFC-ND-SI status
o Branch network crossed 500 branches
2008 o Retail loan portfolio crossed Rs21bn
o Retail debenture portfolio crossed Rs1bn
o Converted into a Public Limited Company
2010 o Retail loan portfolio crossed Rs74bn
o Retail debenture portfolio crossed Rs27bn
o CRISIL assigned ‘P1+’ rating for short-term debt of Rs4bn
o ICRA assigned A1+ for short term debt of Rs2bn
o Net owned funds crossed Rs5bn
o Gross annual income crossed Rs10bn
o Bank credit limit crossed Rs17bn
o Branch network crossed 1,600 branches
2011 o Retail loan portfolio crossed Rs158bn
o Retail debenture portfolio crossed Rs47bn
o CRISIL assigned long term rating of AA-/ Stable for Rs1bn subordinated debt and for Rs4bn NCD issue respectively
o ICRA assigned long term rating of AA-/ Stable for Rs1bn subordinated debt and for Rs2bn NCD issue, respectively
o PE investments of Rs2.5bn in the company by Matrix Partners, LLC, Wellcome Trust, Kotak PE, Kotak Investments and Baring
India PE
o Net owned funds crossed Rs13bn
o Gross annual income crossed Rs23bn
o Bank credit limit crossed Rs60bn
o Branch network crossed 2,700 branches

63
 Muthoot Finance, October 18, 2021 ICICI Securities
Period Milestone
2012 o Retail loan portfolio crossed Rs246bn
o Retail debenture portfolio crossed Rs80bn
o ICRA assigned long-term rating of AA- Stable and short-term rating of A1+ for Rs93.5bn line of credit
o Successful IPO of Rs9bn in April 2011
o Raised Rs7bn through Non-Convertible Debenture Public Issue Series I
o Raised Rs4.6bn through Non-Convertible Debenture Public Issue - Series II
o Net owned funds crossed Rs29bn
o Gross annual income crossed Rs45bn
o Bank credit limit crossed Rs92bn
o Branch network crossed 3,600 branches
2014 o Retail loan portfolio crossed Rs219bn
o Net owned funds crossed Rs42bn
o Gross annual income touched Rs49bn
o Branch network crossed 4,200 branches
2015 o Issued 25,351,062 fresh equity shares by institutional placement aggregating up to Rs4.2bn
o Listed debenture portfolio raised through public issue of Rs14.6bn
o Retail loan portfolio touched Rs234bn
o Net owned funds crossed Rs50bn
o Gross annual income touched Rs43bn, PAT for the year touched Rs6.7bn
o Acquired 51% equity share of Colombo-based PLC, Asia Asset Finance (AAF)
2016 o Retail loan portfolio crossed Rs243bn. Listed debenture portfolio raised through public issue Rs12bn.Net owned funds crossed
Rs55bn. Gross annual income touched Rs49bn. Profit after Tax for the year touched Rs8bn
o Acquired 79% of equity capital of Muthoot Homefin (India) Limited (MHIL), a housing finance company registered with the
National Housing Bank
o Acquired Muthoot Insurance Brokers Private Limited (MIBPL) as a wholly-owned subsidiary in June 2016. MIBPL held a
license to act as direct broker from IRDAI since 2013
o Acquired 46.83% of Belstar Investment and Finance Private Limited (BIFPL) in July 2016. BIFPL was reclassified as an
‘NBFC-MFI’ by RBI with effect from December 11, 2013
2017 o Loan assets portfolio crossed Rs272bn
o Listed debenture portfolio raised through public issue Rs18bn
o Net owned funds crossed Rs64bn
o Gross annual income touched Rs57bn
o PAT for the year touched Rs12bn
o Increased stake in BIFPL to 64.60%, thus making it a subsidiary
o Increased stake in MHIL to 88.27%
o Increased stake in AAF to 60%
2018 o Loan assets portfolio crossed Rs291bn
o Listed debenture portfolio raised through public issue of Rs20bn
o Net owned funds crossed Rs77bn, gross annual income touched Rs62.43bn, PAT for the year touched Rs17bn
o Branch network crossed 4,300 branches
o Increased stake in BIFPL to 66.61%
o Enlarged stake in MHIL to 100% making it a wholly-owned subsidiary
2020 o Loan assets portfolio crossed Rs416bn
o Listed debentures raised Rs21bn through public issue and Rs14bn through private placement
o Net owned funds crossed Rs113bn
o Gross annual income touched Rs87bn
o PAT for the year touched Rs30bn
o Branch network crossed 4,500 branches
o Increased stake in Asia Asset Finance PLC to 72.92%
o Muthoot Finance was assigned issuer ratings by three international credit rating agencies – Fitch Ratings at “BB+/ Stable”,
S&P Global at “BB/Stable” and Moody’s Investor Service at “Ba2/ Stable”
o In October 2019, raised US$450mn by issuing 6.125% senior secured notes and in March 2020, raised US$550mn by issuing
4.40% senior secured notes under both Rule 144A and Regulation S of US Securities Act, 1933.
2021 o Loan assets portfolio crossed Rs526bn
o Listed debentures raised through public issue of Rs23b and through private placement of Rs36bn
o Net owned funds crossed Rs152bn
Source: Company report, I-Sec research

64
Muthoot Finance, October 18, 2021 ICICI Securities
Table 2: Credit ratings
Muthoot Finance Ltd Belstar Microfinance Muthoot Homefin Muthoot Money
Long term: AA/Stable
Long term: AA+/Stable by CRISIL, ICRA Long term: AA-/Stable by CRISIL Long term: AA+/Stable by CRISIL
by CRISIL
International long term: BB (Stable) by
Long term: A+/Stable by ICRA CP: A1+ by ICRA, CARE
Fitch ratings
International long term: BB (Negative) by
Long term: A+/Stable by CARE
S&P Global Ratings
International long term PP-MLD: Ba2
Short term: A1+ by CRISIL
(Stable) by Moody’s investors service
CP: A1+ by CRISIL, ICRA
Source: Company report, I-Sec research
Note: AA rating category indicates highest degree of safety regarding timely servicing of financial obligation. Such instruments carry lowest credit
risk. A rating category indicates adequate degree of safety regarding timely servicing of financial obligation. Such instruments carry lowest credit
risk. BB (Stable) International long term rating indicates an elevated vulnerability to default risk, particularly in the event of adverse change in
business or economic condition over time, however, business or financial flexibility exists that supports the servicing of financial commitments. BB
(Negative) International long-term rating indicates less vulnerable in the near-term but faces major ongoing uncertainties to adverse business,
financial and economic conditions. Ba2 (Stable) International long-term rating indicates obligations are judged speculative and are subject to
substantial credit risk with modifier 2 indicating a midrange ranking. A1 short term rating category indicates very strong degree of safety regarding
timely servicing of financial obligation. Such instruments carry lowest credit risk.

Table 3: Details of Board of Directors and key management personnel

Name Designation Experience
George Alexander Muthoot Promoter & Managing George Alexander Muthoot is a chartered accountant who qualified with first rank in Kerala
Director and was ranked 20th overall in India in 1978. He was awarded the Times of India group
Business Excellence Award in customised financial services in March 2009. He has over
three decades of experience in managing businesses in the field of financial services.

George Jacob Muthoot Chairman, Promoter & George Jacob Muthoot has a degree in civil engineering from Manipal University and is a
Whole Time Director businessperson by profession. He has over three decades of experience in managing
businesses operations in the field of financial services.

George Thomas Muthoot Promoter & Joint George Thomas Muthoot is a businessperson by profession. He is an undergraduate. He has
Managing Director over three decades of experience in managing businesses operating in the field of financial
services. He has received the ‘Sustainable Leadership Award 2014’ by the CSR congress in
the individual category.

Alexander George Promoter group & Alexander George is an MBA graduate from Thunderbird, The Garvin School of International
Deputy Managing Management, Glendale, Arizona, USA. He has been heading the marketing, operations, and
Director international expansion of the company. Currently, he manages the entire business
operations of North, East and West India of Muthoot Finance.

Jose Mathew Independent Director Jose Mathew is a qualified chartered accountant. He was employed with Kerala State Drugs
& Pharmaceutical Limited, a Government of Kerala undertaking from 1978 in various
positions and demitted office as managing director in 1996 – 97. He also served as the
secretary and general manager finance of Kerala State Industrial Enterprises, a holding
company of the Government of Kerala as the member of the first Responsible Tourism
Committee constituted by Department of Tourism, Government of Kerala. He has been
honoured with various awards and recognitions in tourism.

Jacob Benjamin Koshy Independent Director Jacob Benjamin Koshy is the former Chief Justice of the High Court of Judicature at Patna.
Elevated as a judge of the High Court of Kerala, he became the Acting Chief Justice of the
High Court of Kerala in December 2008. He was appointed as chairman of the Appellate
Tribunal for Forfeited Property New Delhi on April 08, 2010. In May 2010 he was given
additional charge as chairman of the Appellate Tribunal under the Prevention of Money
Laundering Act. He also assumed charge as the chairperson of the Kerala State Human
Rights Commission and on completion of the five-year tenure, retired on September 04,
2016.

Ravindra Pisharody Independent Director Ravindra Pisharody is a corporate business leader and management professional with over
35 years of experience across diverse industries. He super-annuated recently, in September
2017, as Whole-Time Director on the Board of Tata Motors Limited, where he was heading
the commercial vehicles business unit. He chaired joint ventures including Tata-Cummins
and Tata–Marcopolo, as well as overseas companies such as Tata Daewoo (Korea) and
Tata Motors South Africa, and served on the Boards of Indian subsidiaries like Tata Motors
Finance Limited. His previous corporate roles include an 18-year stint with Philips India,
where his last role was Vice-President, Consumer Electronics and 8 years in BP/ Castrol
where he was a member of the Board of Directors of Castrol India Limited. He has also been
active in industry bodies such as Advertising Standards Council of India (ASCI), Audit Bureau
of Circulation (ABC), and Society of Indian Automobiles Manufacturers (SIAM) in 2016-17.

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Name Designation Experience
Vadakkakara Antony Independent Director Mr. VA George is a mechanical engineering graduate with a post graduate diploma in
George management. He was the past Chairman of Equipment Leasing Association of India and a
guest faculty at the Reserve Bank of India Staff College. Out of his four decades of
experience in the corporate world (both in public and private sectors), more than 25 years
have been in senior management positions.

Pratip Chaudhuri Independent Director Mr. Pratip Chaudhuri is the former Chairman of the State Bank of India and has over 40
years of rich experience in banking sector. He has also served as the Chairman of SBI
Global Factors Limited, State Bank of Mysore, State Bank of Bikaner & Jaipur, State Bank of
Travancore, State Bank of Hyderabad and State Bank of Patiala. He was the Chairman of
SBI Mutual Fund and SBI Life. He was also a Director at Export-Import Bank of India (EXIM
Bank of India).

Usha Sunny Independent Director Mrs. Usha Sunny is an experienced banking professional with more than 3 decades of
experience. Mrs. Usha Sunny has worked with Mashreq Bank PSC, Dubai, Standard
Chartered Bank, Dubai, Indian Overseas Bank and Kerala State Drugs and Pharmaceuticals
Limited in diversified roles.

Oommen K Mammen Chief Financial Officer Mr. Mammen is the fellow member of ICAI, Delhi with over 14 years of experience in the
industry.

Rajesh A Company Secretary Mr. Rajesh has been associated with Muthoot group over the past 6-7 years working as a
company secretary or compliance officer at various group companies.

Dr. Kalpanaa Sankar Managing Director- Dr. Kalpanaa Sankar has been involved in the self-help group movement for 21 years and
Belstar has specialised in participatory assessment, gender differentiated impact and monitoring
tools. She was the Monitoring and Evaluation Officer for IFAD and was Consultant with
UNOPS, UNDP, Christian Aid, Wetlands International, and South African government. She
has also supported poverty reduction, job creation and microfinance programmes in
Afghanistan and Brazil. She is the co-founder and Managing Trustee of Hand in Hand India.
She is the recipient of the “Princess Sabeeka Bint Ibrahim AI- Khalifa Global Award for
Women Empowerment under the Individuals Champions category”, an award given in
partnership with the Kingdom of Bahrain and UN Women in New York in 2019. She has also
received the “Nari Shakti Puraskar-2016″ for her contribution to the empowerment of
vulnerable and marginalised women from the President of India and Ministry of Women &
Child. Under her leadership, her organisation, Hand in Hand India has won the ‘Pradhan
Mantri Bal Kalyan Puraskar’ for its dedicated work towards child welfare and education.

Mr. Rajeev Khond CEO-Muthoot Homefin He has 36+ years of experience in banking. After joining SBI in 1985, he handled functions of
IT, HR, admin, retail banking, home loans, operations and risk management during his
tenure. He was a key member of the founding team in SBI and home loan business. His last
assignment in SBI was General Manager Enterprise and Group Risk Management.
Source: Company report, I-Sec research

Table 4: Details of key committees

Nomination & Risk Asset Liability
Board of Directors Designation Remuneration Management Management Audit Committee
committee Committee Committee
George Alexander Muthoot Promoter & Managing Director Yes Yes
George Thomas Muthoot Promoter & Joint Managing Director Yes
Jose Mathew Independent Director Yes Yes Yes
Jacob Benjamin Koshy Independent Director Yes
Ravindra Pisharody Independent Director Yes
Vadakkakara Antony George Independent Director Yes Yes Yes
Usha Sunny Independent Director Yes
Source: Company report, I-Sec research

Table 5: Shareholding pattern

Category No. of Shares % of holding
Promoter and promoter group 29,44,63,872 73.4
Mutual Fund 2,76,28,499 6.89
Alternate Investment Funds 17,20,660 0.43
Foreign Portfolio Investor 6,02,41,634 15.02
Financial Institutions / Banks 3,63,308 0.09
Insurance Companies 12,91,350 0.32
Others including Public 1,54,90,088 3.86
Total 40,11,99,411 100.00
Source: BSE, I-Sec research; As on June 30, 2021

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 Muthoot Finance, October 18, 2021 ICICI Securities
Chart 6: Muthoot family tree

*Spouse, + indicates spouse share

Source: I-sec research; Company reports

Table 7: Details of promoter and promoter family’s remuneration

For the financial year Rs Mn % of consolidated PBT
2015-16 195.6 1.5
2016-17 358.0 1.8
2017-18 427.5 1.5
2018-19 547.6 1.7
2019-20 633.8 1.5
2020-21 794.16 1.5
Source: I-Sec research; Company reports

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Technology and marketing achievements

Over the last decade, Muthoot has been investing in digital technologies such as
integration with multiple systems through APIs, implementing a video KYC solution,
using technology to enhance physical security at the branch level, outsourced CRM
solution for customer on boarding, lead management, sales, marketing, and customer
service. This will increase its competencies and provide innovative solutions to
customers that enhance customer experience and widen its reach among a growing
tech-savvy population. This is very important in the context that there are a lot of
fintechs that have entered the Indian lending space making it very easy for customers
to avail loans.

Table 8: Key technological adoptions by Muthoot

Technological solution Features
IMuthoot App Launched in Nov’16, the app has about 3.58mn downloads. This allows customers to manage and repay loan interest
online anytime and anywhere through their mobile phones.
The company is working on redesigning the user interface and overall navigations to make it more intuitive and
customer friendly.

Muthoot Online This application acts independently as an online payment system. This responsive web application for desktop, laptops,
mobiles and tablets facilitates customers to make online repayments and top-up loans.

Loan@Home Launched in July’20, the app has about 10K + downloads. This application enables customers to avail gold loans from
the comfort of their homes. Recently added features in this app aid in the swift processing and quick sanctioning of
loans, consequently leading to improvements in loan portfolio.

SalesNext This mobile application enables to strengthen marketing initiatives by allowing lead creation on the spot; it works as a
standalone system and acts as an extended arm of the centralised CRM application. This year, company added
facilities to set targets for sales executives, which can be monitored using the app. Admin users can monitor the
movements of sales executives.

Click 2 Call This is an enterprise mobile application for Muthoot Finance Branch employees to contact customers and to follow-up
for various campaigns. The application was recently extended to various subsidiaries of MFIN.

Collection mobile The application has been developed to collect payment from customers’ doorsteps at their convenience. Recent
applications changes in the app enables the organisation to extend this application to approved third-party (agency) for collecting
payments.

Source: Company report, I-Sec research

Additionally, the company is also undertaking few more digital projects through which
it plans to bring in more efficiencies and enhance customer’s experience, more such
as data enrichment for effectively leveraging the data sets by applying BI/analytics to
generate actionable insights (AI-driven development particularly for MFI business such
as customer face identification, security surveillance etc.). Muthoot Finance has also
continuously invested in marketing and advertisement to build its brand over the years.
This has helped the company build a trusted gold financing brand over the years
providing it a significant advantage over new entrants. These marketing campaigns
help the company keep the existing customers and attain new customers as well.

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Table 9: Key marketing campaigns in FY21
Campaigns Features
‘Gold loan is good’: Goodness This was an integrated marketing campaign created to address and eliminate the taboo and apprehensions
of gold prevailing among common people regarding gold loans. The campaign highlighted the additional benefits and
features of gold loans provided by Muthoot Finance, along with reiterating its market leadership and customer
base. The campaign helped the company in generating over Rs60bn business.

Sunheri Soch: Golden thoughts This radio and digital marketing campaign captured the testimony of people, drawn from various economic and
social backgrounds, who had benefited by availing gold loans from Muthoot Finance. These stories were
narrated by Amitabh Bachchan himself and were aired in a storytelling format across 36 radio stations of Red
FM 93.5 across North, East and West India, and actively promoted by >100 celebrity radio jockeys.
Considering the positive reception from target customers and new loan seekers, a special ‘Sunheri Soch’
musical anthem was introduced featuring Amitabh Bachchan and some of India’s top radio jockeys. The
campaign helped the company in generating over Rs1.5bn business.

Karodon ka gold loan This integrated marketing campaign was launched to enhance visibility of special new loan product: Muthoot
chutkiyon mein: Ease of Big Business Loan in Q4FY21. It highlighted how small, medium and large businesses could avail big-ticket
business gold loans from Muthoot Finance in the shortest turnaround time, validating the seamlessness of services.
This was a three-ad series, where Amitabh Bachchan played different characters, running different types of
businesses. In all the characters, the protagonist is in need of funds to grow his business, purchase stock, raw
material, expand scale, pay salaries, rent, tax or meet other business-related expenses. The role play in three
different characters made the communication convincing and thereby, more engaging. The ads were run
across television, print, digital, outdoor and BTL media. The campaign helped the company in generating
around Rs17.5bn business.

Nandanam & Greater Kailash Muthoot Finance has been associated with the Chennai Metro Rail Limited and Delhi Metro Rail Corporation
Metro Stations - Branding on and has been able to enhance its brand visibility through the naming and branding of Nandanam Metro Station
the Move in Chennai and Greater Kailash Metro Station in Delhi. Through this campaign, the company was able to
showcase its key products and services, business offerings and widespread branch network to commuters
every day.

Source: Company report, I-Sec research

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Key subsidiaries
Table 10: Key subsidiaries of Muthoot Finance
Incorporated originally in 2011, Muthoot Homefin (India) Limited (MHIL) is a housing finance company registered
with the National Housing Bank (NHB). Acquired in March 2016, it became a wholly-owned subsidiary of Muthoot
Muthoot Homefin India Ltd Finance Limited in August 2017. MHIL focusses on the affordable housing segment with focus on lower and middle-
(MHIL) income (LMI) families in tier II and tier III locations. The company operates in a hub-and-spoke model, with presence
in 16 states through 108 branches. As on March 31, 2021, its AUM stood at Rs17bn.

Incorporated in January 1988, Belstar is a microfinance non-banking finance company (NBFC-MFI) registered with
the RBI. Muthoot Finance initially acquired around 47% stake in Belstar in July 2016, which it further increased to
64.6% in FY17, thus making it its subsidiary. Currently, Muthoot Finance holds 70.01% stake in Belstar. Belstar was
originally acquired by the ‘Hand in Hand’ group in September 2008 to provide scalable microfinance services to
Belstar Microfinance Ltd entrepreneurs nurtured by ‘Hand in Hand’s’ Self Help Group (SHG) programme. In the last 12 years of its
(Belstar) operations, Belstar primarily relied on taking over the existing groups formed by Hand in Hand India. BML
predominantly follows the SHG model of lending. Effective January 2015, Belstar started working in JLG model of
lending in Pune district, Maharashtra. As on March 31, 2021, its AUM stood at Rs33bn with presence in 18 states
through 649 branches.

Muthoot Money is a 100% subsidiary of Muthoot Finance Limited. The company commenced its vehicle and
equipment finance operations in June 2018 and became a wholly-owned subsidiary in October 2018. It has its
Muthoot Money Ltd corporate office in Hyderabad and is registered as an NBFC with the RBI. It is engaged in providing 2-wheeler, car
(Muthoot Money) (new and used), construction equipment, and commercial vehicle (new and used) loans. As on March 31, 2021, its
AUM stood at Rs3.7bn with 14 branches.

Muthoot Insurance Brokers is a direct insurance broker licensed by the Insurance Regulatory and Development
Authority of India (IRDAI) for doing life and non-life businesses. Muthoot Insurance Brokers became a wholly-owned
Muthoot Insurance
subsidiary of Muthoot Finance in September 2016. It is actively distributing both life and non-life insurance products
Brokers Pvt Ltd
of various insurance companies.

Asia Asset Finance PLC is a licensed, deposit-taking institution registered with the Central Bank of Sri Lanka.
Formerly known as Finance and Land Sales, it possesses an experience of >49 years. The subsidiary was acquired
Asia Asset Finance Plc in 2014. It is a diversified NBFC engaged in vehicle, mortgage, MFI, gold loans etc. As on March 31, 2021, total
holding in AAF stood at 72.92%. Gross loan portfolio stands at LKR14,002mn (Rs5,150mn) as on March 31, 2021.

Source: I-Sec research, Company reports

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Table 11: Key financial highlights of subsidiaries
FY 18 FY 19 FY 20 FY 21
AUM (Rs Mn)
Muthoot Homefin 14,589 19.075 19.769 17,042
Belstar 11,381 18,419 26,310 32,999
Asia Asset Finance 4,134 4,974 5,380 5,150
Muthoot Money 65 3,107 5,090 3,668
GNPA (%)
Muthoot Homefin 0.4 0.7 1.7 4.0
Belstar 0.8 1.1 0.9 2.4
Muthoot Money NA NA NA 8.6
Networth (Rs Mn)
Muthoot Homefin 2,082 3,942 4,260 4,387
Belstar 1,256 4,002 4,978 5,417
Asia Asset Finance 772 773 844 817
Muthoot Money 32 1,035 1,062 1,099
Debt (Rs Mn)
Muthoot Homefin 13,467 15,382 14,165 11,831
Belstar 12,174 15,828 18,956 27,956
PAT (Rs Mn)
Muthoot Homefin 223 363 318 126
Belstar 270 729 990 467
Asia Asset Finance 83 40 27 17
Muthoot Money NA 3 27 37
RoE (%)
Muthoot Homefin 15.0 12.0 7.7 2.9
Belstar 25.0 27.7 22.0 9.0
Asia Asset Finance 11.1 5.3 3.4 2.0
Muthoot Money NA 0.6 2.6 3.4
Muthoot Insurance Brokers
Premium collection (Rs Mn) 1,692 2,676 3,232 4,055
Networth (Rs Mn) 276 427 531 847
PAT (Rs Mn) 105 150 104 316
Source: Company report, I-Sec research

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Valuation
We value Muthoot Finance by using SoTP methodology. We have used suitable
multiples for each business and have applied the same on average book value of
FY23E and FY24E. For all businesses other than gold loan business, we have used
price to book multiple of 1x considering the limited track record. However, to arrive at
the P/B multiple of gold business, we have used reconciliation of three methods which
are as following:

1) Residual income method for consolidated business with CoE assumed at 12.0%
with explicit forecast of 9 years and then using terminal value. We have assumed
5% increase in residual income for calculating terminal value. The multiple arrived
through this method on consolidated business is used for gold business as gold
business is the primary business of the group.
2) Two stage Gordon growth model for estimating price-book ratios from
fundamentals with 15 years of high growth stage and stable growth stage post
that on consolidated business. In this case as well, we have assumed CoE to be
around 12.0% with around 15% growth in book value during high growth stage
with RoE of around 23%. For the stable period, we have assumed 5% growth in
book value along with RoE nearing 15.5%. The multiple arrived through this
method on consolidated business is used for gold business as gold business is
the primary business of the group.
3) Trend of historical price to forward book value chart of standalone business
In order to arrive at standalone net worth used in standalone business, we have
deducted consolidated net worth (including minority interest) from other businesses’
net worth.

The result of all three valuation methods are as follows:

1) Residual valuation method gives a multiple of 2.7 times on Sep’23E book value
(average of FY 23 [E] and FY 24 [E] book value).
2) 2 stage Gordon growth model leads to 3.8x P/B multiple.
3) Historical trend of price to forward book value provides an average multiple of 1.8
times on forward book value.
Final multiple of 3.3 times for gold business has been arrived at by taking the average
of multiple given by residual valuation method and 2 stage Gordon growth model. We
have not used historical trend of forward multiple as we believe that the company went
through different phases of growth which may not likely recur in the future.

Table 12: Muthoot Finance valuation

Multiple (x) Base (Rs Mn) BV per share Share in the entity Value per share
Standalone (Gold) 3.3** 2,28,873 570 100% 1,864
Belstar 1.0 10,604 26 57.89%* 15
Muthoot Homefin 1.0 5,298 13 100% 13
Asia Asset Finance 1.0 1,064 3 72.92% 2
Other businesses 1.0 3,773 9 100% 9
Target Price 1,904
*Post expected capital raise announcement by Belstar **Rounded off
Source: Company report, I-Sec research

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Muthoot Finance, October 18, 2021 ICICI Securities
Chart 13: Muthoot Finance historical trend of one year forward P/BV (standalone)
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
-
Mar-13

Mar-14

Mar-16

Mar-19

Mar-21
Mar-15

Mar-17

Mar-18

Mar-20
Sep-13

Sep-14

Sep-16

Sep-17

Sep-19

Sep-21
Sep-12

Sep-15

Sep-18

Sep-20
1Yr Fwd PBV Avg -1SD +1SD -2SD +2SD
Source: Company report, I-Sec research

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Key Risks in the Business

 Steep fall in gold prices: It can have a two-fold impact. Steep fall in gold prices
can lead to fall in ticket sizes leading to impact on AUM growth. Secondly, lower
resale value due to steep fall in gold prices can discourage customers to repay
their obligations leading to company having to incur losses due to lower realization
through auctions.
 Increasing competitive intensity: Along with banks and other NBFCs, Muthoot’s
gold business is also exposed to risk from other types of products such as
unsecured personal loans and unsecured business loans which could have an
impact on AUM growth, yields and hence on earnings.
 High geographical concentration: While Muthoot is trying to geographically
diversify, more than 50% of its gold loan portfolio continues to be in southern
states, therefore, exposing it to concentration risk as any socio-political event in
that geography can have negative impact.
 Regulatory risk: Regulatory changes that took place during 2012-13 had a
significant impact on the entire gold loan NBFCs. While these companies have
recovered from those changes, any sudden regulatory changes in terms of pricing,
processes or margins can lead to negative impact on Muthoot’s business.
 Limited track record of non-gold business: Muthoot’s non-gold business
currently constitutes around 11% of consolidated AUM of the group. As Muthoot
entered most of these business in around 2015 and 2016, the track record of
these businesses are short with limited seasoning the portfolio. These businesses
require special attention as they are completely different from gold loan business.
Hence, any challenges faced in these businesses can lead to credit losses for the
group at consolidated level, therefore, impacting the earnings.

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Financial summary (standalone)

Table 14: Income statement
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Interest Income 61,945 67,391 85,307 1,02,409 1,22,136 1,45,250 1,66,788 1,89,053
Interest expense 19,314 22,368 27,909 36,924 44,907 50,243 55,062 60,694
Net interest income 42,631 45,022 57,397 65,484 77,230 95,007 1,11,726 1,28,359

Non-Interest 1,387 1,415 1,921 3,335 3,984 4,736 5,441 6,171

income

Total net income 44,017 46,438 59,319 68,819 81,213 99,743 1,17,168 1,34,530

Operating 13,174 15,394 17,787 17,804 19,895 22,683 25,921 29,605

expenses

PPOP 30,843 31,044 41,531 51,015 61,319 77,060 91,247 1,04,925

Provisions 2,397 275 957 950 1,772 2,596 3,234 3,099

PBT 28,447 30,768 40,574 50,065 59,547 74,464 88,013 1,01,826

Tax 10,671 11,047 10,391 12,843 16,078 20,850 25,524 29,530
PAT 17,776 19,721 30,183 37,222 43,470 53,614 62,489 72,297
EPS 44.4 49.2 75.3 92.8 108.4 133.6 155.8 180.2
DPS 10.0 - 27.0 - 32.5 33.4 38.9 45.1
Source: Company data, I-Sec research

Table 15: Balance sheet

(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Liabilities
Share capital 4,000 4,007 4,010 4,012 4,012 4,012 4,012 4,012
Reserves and surplus 74,120 93,921 1,11,708 1,48,377 1,76,313 2,13,980 2,57,881 3,08,671
Networth 78,120 97,927 1,15,718 1,52,389 1,80,325 2,17,992 2,61,893 3,12,683

Borrowings 2,11,670 2,68,332 3,71,300 4,59,463 5,49,673 5,92,222 6,45,115 7,18,789

Other liabilities 18,132 14,428 17,538 22,798 23,254 26,742 30,753 35,366

Total Liabilities 3,07,923 3,80,687 5,04,557 6,34,649 7,53,252 8,36,956 9,37,761 10,66,838

Assets
Net Block 2,062 2,154 2,565 2,854 3,197 3,516 3,798 4,101
Loans 2,95,068 3,49,329 4,26,042 5,40,634 6,48,614 7,58,044 8,70,905 9,91,929
Other assets 10,792 29,204 75,950 91,161 1,01,441 75,395 63,058 70,807

Total Assets 3,07,923 3,80,687 5,04,557 6,34,649 7,53,252 8,36,956 9,37,761 10,66,838
Source: Company data, I-Sec research

Table 16: RoE Du-pont

(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Gross AUM 2,91,420 3,42,461 4,16,106 5,26,223 6,31,468 7,38,817 8,49,640 9,68,177
Interest Income 20.1% 19.6% 19.3% 18.0% 17.6% 18.3% 18.8% 18.9%
Interest Expense 6.3% 6.5% 6.3% 6.5% 6.5% 6.3% 6.2% 6.1%
Net Interest Income 13.9% 13.1% 13.0% 11.5% 11.1% 11.9% 12.6% 12.8%
Other Income 0.5% 0.4% 0.4% 0.6% 0.6% 0.6% 0.6% 0.6%
Total Net Income 14.3% 13.5% 13.4% 12.1% 11.7% 12.5% 13.2% 13.4%
Operating Expenses 4.3% 4.5% 4.0% 3.1% 2.9% 2.9% 2.9% 3.0%
Pre Provision Operating Profit 10.0% 9.0% 9.4% 9.0% 8.8% 9.7% 10.3% 10.5%
Provisions 0.8% 0.1% 0.2% 0.2% 0.3% 0.3% 0.4% 0.3%
PBT 9.3% 8.9% 9.2% 8.8% 8.6% 9.4% 9.9% 10.2%
Tax 3.5% 3.2% 2.3% 2.3% 2.3% 2.6% 2.9% 2.9%
Reported PAT 5.8% 5.7% 6.8% 6.5% 6.3% 6.7% 7.0% 7.2%
Leverage (average assets / 4.3 3.9 4.1 4.2 4.2 4.0 3.7 3.5
average equity)
RoE 24.8% 22.4% 28.3% 27.8% 26.1% 26.9% 26.0% 25.2%
Source: Company data, I-Sec research

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Muthoot Finance, October 18, 2021 ICICI Securities
Table 17: Key ratios
(Year ending Mar 31)
Valuations FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
EPS 44.4 49.2 75.3 92.8 108.4 133.6 155.8 180.2
BVPS 195.3 244.4 288.5 379.8 449.5 543.4 652.8 779.4
Yields, Interest income & spreads
Yield on AUM 22.0% 21.3% 22.5% 21.7% 21.1% 21.2% 21.0% 20.8%
Cost of funding 9.2% 9.3% 8.7% 8.9% 8.9% 8.8% 8.9% 8.9%
NIM on AUM 15.1% 14.2% 15.1% 13.9% 13.3% 13.9% 14.1% 14.1%
Operating efficiency
Cost to income 29.9% 33.2% 30.0% 25.9% 24.5% 22.7% 22.1% 22.0%
Opex to AUM 4.7% 4.9% 4.7% 3.8% 3.4% 3.3% 3.3% 3.3%
AUM per branch (Rs Mn) 67.4 76.4 91.1 113.6 133.5 153.5 173.5 192.5
Asset Quality
GNPA 4.4% 2.7% 2.2% 0.9% 1.8% 2.1% 2.2% 2.2%
NNPA 3.8% 2.4% 1.9% 0.8% 1.6% 1.8% 1.8% 1.8%
Credit cost on AUM 0.8% 0.1% 0.3% 0.2% 0.3% 0.4% 0.4% 0.3%
Profitability
ROAA 5.8% 5.7% 6.8% 6.5% 6.3% 6.7% 7.0% 7.2%
ROE 24.8% 22.4% 28.3% 27.8% 26.1% 26.9% 26.0% 25.2%
Capital
Tier 1 25.5% 25.6% 24.3% 26.3% 26.2% 27.1% 29.0% 30.5%
Tier 2 0.8% 0.4% 1.2% 1.1%
RWA/ Total Assets 99.3 96.5 92.2 90.9 91.0 96.0 96.0 96.0
Source: Company data, I-Sec research

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Muthoot Finance, October 18, 2021 ICICI Securities

Financial summary (consolidated)

Table 18: Income statement
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Interest Income 66,184 73,839 93,546 1,11,053 1,32,528 1,57,942 1,82,289 2,07,925
Interest expense 21,271 25,355 31,728 40,999 49,473 55,990 61,925 68,851
Net interest income 44,912 48,484 61,818 70,054 83,055 1,01,952 1,20,365 1,39,074

Non-Interest 1,633 2,172 3,527 4,611 5,416 6,386 7,342 8,345

income

Total net income 46,545 50,656 65,344 74,665 88,471 1,08,338 1,27,707 1,47,419

Operating 14,412 17,382 20,870 20,798 23,392 26,931 31,124 35,902

expenses

PPOP 32,134 33,274 44,475 53,867 65,078 81,407 96,538 1,11,517

Provisions 2,713 679 1,871 2,552 3,732 4,160 4,943 4,951

PBT 29,421 32,595 42,604 51,315 61,347 77,247 91,640 1,06,566

Tax 10,983 11,566 10,917 13,126 16,565 21,667 26,580 30.908
PAT 18,438 21,030 31,687 38,189 44,782 55,580 65,059 75,658
PAT after minority 18,298 20,780 31,382 38,044 43,886 54,469 63,758 74,145
interest
EPS 45.7 51.9 78.3 94.8 109.4 135.8 158.9 184.8
DPS 10.0 - 27.0 - 32.5 33.4 38.9 45.1
Source: Company data, I-Sec research

Table 19: Balance sheet

(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Liabilities
Share capital 4,000 4,007 4,010 4,012 4,012 4,012 4,012 4,012
Reserves and surplus 74,565 95,305 1,14,282 1,51,738 1,80,049 2,18,527 2,63,653 3,16,247
Networth 78,566 99,312 1,18,292 1,55,750 1,84,060 2,22,539 2,67,665 3,20,258

Minority Interest 733 1,424 1,721 1,846 2,744 3,858 5,163 6,680
Borrowings 2,38,907 3,01,275 4,09,352 5,03,966 5,98,073 6,52,478 7,16,487 8,03,635
Other liabilities 18,511.9 15,326.8 19,300.5 24,710.0 27,820.0 31,334.9 35,362.3 39,967.3

Total Liabilities 3,36,718 4,17,338 5,48,666 6,86,272 8,12,697 9,10,210 10,24,676 11,70,542

Assets
Net Block 2,360 2,521 2,956 3,186 3,640 4,033 4,349 4,735
Loans 3,22,523 3,87,225 4,70,677 5,88,085 7,06,360 8,28,172 9,54,687 10,92,146
Goodwill 212 300 300 300 300 300 300 300
Other assets 11,623 27,291 74,732 94,701 1,02,396 77,704 65,340 73,361

Total Assets 3,36,718 4,17,338 5,48,666 6,86,272 8,12,697 9,10,210 10,24,676 11,70,542
Source: Company data, I-Sec research

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Muthoot Finance, October 18, 2021 ICICI Securities
Table 20: RoE Du-pont
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Gross AUM (Rs Mn) 3,19,278 3,83,042 4,69,282 5,82,751 6,98,787 8,19,631 9,46,267 10,83,192
Interest Income 20.1% 19.6% 19.4% 18.0% 17.7% 18.3% 18.8% 18.9%
Interest Expense 6.5% 6.7% 6.6% 6.6% 6.6% 6.5% 6.4% 6.3%
Net Interest Income 13.6% 12.9% 12.8% 11.3% 11.1% 11.8% 12.4% 12.7%
Other Income 0.5% 0.6% 0.7% 0.7% 0.7% 0.7% 0.8% 0.8%
Total Net Income 14.1% 13.4% 13.5% 12.1% 11.8% 12.6% 13.2% 13.4%
Operating Expenses 4.4% 4.6% 4.3% 3.4% 3.1% 3.1% 3.2% 3.3%
Pre Provision Operating Profit 9.8% 8.8% 9.2% 8.7% 8.7% 9.4% 10.0% 10.2%
Provisions 0.8% 0.2% 0.4% 0.4% 0.5% 0.5% 0.5% 0.5%
PBT 8.9% 8.6% 8.8% 8.3% 8.2% 9.0% 9.5% 9.7%
Tax 3.3% 3.1% 2.3% 2.1% 2.2% 2.5% 2.7% 2.8%
Reported PAT 5.6% 5.6% 6.6% 6.2% 6.0% 6.5% 6.7% 6.9%
Leverage (average 4.6 4.2 4.4 4.5 4.4 4.2 3.9 3.7
assets/average equity)
RoE 25.6% 23.6% 29.1% 27.9% 26.4% 27.3% 26.5% 25.7%
Source: Company data, I-Sec research

Table 21: Key ratios

(Year ending Mar 31)
Valuations FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
EPS 45.7 51.9 78.3 94.8 109.4 135.8 158.9 184.8
BVPS 196.4 247.9 295.0 388.2 458.8 554.7 667.2 798.3

Yields, Interest income & spreads

Yield on AUM 21.8% 21.0% 22.0% 21.1% 20.7% 20.8% 20.6% 20.5%
Cost of funding 9.2% 9.4% 8.9% 9.0% 9.0% 9.0% 9.0% 9.1%
NIM on AUM 14.8% 13.8% 14.5% 13.3% 13.0% 13.4% 13.6% 13.7%
Operating efficiency
Cost to income 31.0% 34.3% 31.9% 27.9% 26.4% 24.9% 24.4% 24.4%
Opex to AUM 4.7% 4.9% 4.9% 4.0% 3.7% 3.5% 3.5% 3.5%
Asset Quality
GNPA (Belstar) 0.8% 1.1% 0.9% 2.4% 3.2% 2.3% 2.0% 1.8%
NNPA (Belstar) 0.3% 0.1% 0.1% 0.5% 0.6% 0.4% 0.2% 0.2%
GNPA (Muthoot Homefin) 0.4% 0.7% 1.7% 4.0% 5.0% 2.7% 2.0% 1.7%
NNPA (Muthoot Homefin) 0.4% 0.5% 1.3% 3.4% 4.2% 2.2% 1.6% 1.4%
Credit cost on AUM 0.9% 0.2% 0.4% 0.5% 0.6% 0.5% 0.6% 0.5%
(Consolidated)
Profitability
ROAA 5.6% 5.6% 6.6% 6.2% 6.0% 6.5% 6.7% 6.9%
ROE 25.6% 23.6% 29.1% 27.9% 26.4% 27.3% 26.5% 25.7%
Source: Company data, I-Sec research

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Equity Research INDIA
October 18, 2021
BSE Sensex: 61306
Manappuram Finance BUY
ICICI Securities Limited
is the author and
distributor of this report More diversified gold loan player Rs195
Manappuram Finance (Manappuram) is the second largest gold loan non-bank
player and amongst the largest players in organised gold loan industry in India
Initiating coverage
with the history of almost three decades. Riding on the strong growth potential of
India’s organised gold loan industry, Manappuram started diversifying into other
Gold Finance products through subsidiaries since FY14. Consequently, non-gold business’
share in consolidated AUM has increased to around 30% in FY21 from 4% in FY15.
However, gold loan remains ~70% of the consolidated AUM as of FY21 and 98% of
the consolidated PAT is contributed by standalone business wherein ~93% is gold
Target price: Rs280
loan in FY21.
 Strong historical track record. Manappuram’s standalone business (~93% is gold
Shareholding pattern loan portfolio) interest income has clocked 18/16% CAGR over the last 5/10 years.
Dec Mar Jun Net interest income has clocked 21/15% CAGR over the last 5/10 years. This has
'20 '21 '21
Promoters 35.0 35.0 35.0 been achieved with 10-year average 0.5% credit cost, 4.3% RoA and 18.4% RoE.
Institutional Gold loan AUM has clocked 13.6/9.7% CAGR over the last 5/10 years. This has led
investors 48.7 47.5 46.8
MFs and others 7.9 7.7 9.7 to 38.2%/19.6% CAGR in earnings over last 5/10 years despite having disruptions
Insurance Cos. 0.5 0.3 0.2 like demonetisation and covid. The growth was achieved initially through branch
FIIs 39.5 38.6 36.8
Others 16.3 17.6 18.2 expansion (3,524 branches currently vs 436 in FY08) and later through increase in
Source: BSE efficiency (Rs58mn AUM per branch in FY21 vs Rs40mn in FY12).
 5-year strategy to consistently grow its AUM by 15-20% with 25% cross-cycle
RoE at consolidated level. This will be achieved through 10-15% growth in gold
Price chart loan book with focus on new channels including doorstep, DSA and online. It plans
250 to grow MFI book by 20% with continuous de-risking of portfolio through
200
geographical diversification and maintenance of strong focus on borrower level
indebtedness and collection efficiency. For remaining businesses such as vehicle
150 and home finance, it plans to achieve consistent RoA of over 2%.
 Tactically responding to competition, which should lead to higher AUM growth
(Rs)

100
at the cost of lower yields in near term. Post 13% QoQ dip in gold loan AUM in
50
Q1FY22, the company has lowered the rates of long-term loan book (over 6 months
0 and Rs0.1mn ticket size) by around 4%. Nevertheless, the book will continue to be
Oct-18

Oct-19

Oct-20

Oct-21
Apr-19

Apr-20

Apr-21

majorly of 3-month tenure, the main focused product. This should lead to overall NIM
going down by 0.9-1.5% in FY22 supported by simultaneous decrease in cost of
funding but should help AUM grow by 15% in FY22. Over the longer term, we expect
14% PAT CAGR over FY21-25E driven by 17% AUM CAGR supported by improved
cost of funding and operational efficiencies.
 Initiate with BUY with target price of Rs280 based on 2.2x multiple of average of
FY23E and FY24E book value of the standalone business. We value subsidiaries at
1x P/B. Our multiple for gold business is based on reconciliation from (1) long term
residual valuation method, (2) two stage Gordon growth model and (3) historical P/B
traded multiples.
Market
( Cap Rs165bn / US$2.2bn Year to Mar (SA) FY21 FY22E FY23E FY24E
Reuters/Bloomberg MGFL IN / MNFL.BO NII (Rs bn) 34 35 42 50
Shares Outstanding (mn) 846.4 Net profit (Rs bn) 17 17 21 24
52-week Range (Rs) 213 / 142 EPS 20.1 20.2 24.5 28.8
Research Analysts:
Free Float (%) 65.0 % change YoY 37.8 0.7 21.2 17.8
Ansuman Deb FII (%) 36.8 P/E (x) 9.7 9.7 8.0 6.8
[email protected]
+91 22 6637 7312 Daily Volume (US$'000) 16,530 P/BV (x) 2.4 2.0 1.7 1.4
Kunal Shah Absolute Return 3m (%) 6.0 Credit cost (%) 0.7 0.7 0.7 0.5
[email protected] Absolute Return 12m (%) 21.3 GNPA (%) 1.9 1.8 1.0 1.0
+91 22 6637 7465
Sensex Return 3m (%) 15.3 RoA (%) 6.9 6.2 6.5 6.7
Vishal Singh
[email protected] Sensex Return 12m (%) 51.1 RoE (%) 27.7 22.5 22.8 22.4
+91 22 6637 7312 Note: SA = Standalone, P/E and P/BV ratios are calculated on CMP
Manappuram Finance, October 18, 2021 ICICI Securities

TABLE OF CONTENT

Company background ................................................................................................... 81

Diversified business model .......................................................................................... 82
Company highlights ...................................................................................................... 83
Valuation ......................................................................................................................... 86
Key Risks in the Business ............................................................................................ 88
Financial summary (standalone) .................................................................................. 89
Financial summary (consolidated) ............................................................................... 91

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Manappuram Finance, October 18, 2021 ICICI Securities

Company background
Manappuram Finance Limited (Manappuram Finance) is a public limited company,
domiciled in India and incorporated on 15 July 1992 in Thrissur, Kerala. It is listed on
Bombay Stock Exchange and National Stock Exchange. The company is a
systemically important non-deposit taking NBFC (NBFC-ND). It is registered with the
Reserve Bank of India (RBI). It is primarily engaged in providing loans against the
security of used household gold jewellery to people belonging to lower socio-economic
classes, particularly in rural and semi-urban areas of India. At a standalone level, it
also provides vehicle financing specifically against car (new and used), 2-wheeler
(new and used), construction equipment (new and used), and tractors (new and used).
Its small standalone portfolio also includes certain mortgage/property loans and on-
lending to NBFCs. The company also provides forex and money transfer services.

 Mr. VP Nandakumar, who is the current MD & CEO of the company, promotes
Manappuram Finance. Its origin dates back to 1949 when his late father Mr. VC
Padmanabhan in the coastal village of Valapad (Thrissur District) founded it. The
firm was involved in pawn broking and money lending carried out on a modest
scale. Mr. Nandakumar took over the reins in 1986 after his father’s demise.
 In gold loan, like Muthoot Finance, it also runs various gold loan schemes that are
linked to LTV, tenure, ticket size and interest rate. While it offers loans of various
tenures with maximum tenure being of 12 months, its prime focus is on the 3-
month long gold loan. Over the years, while the company has diversified into other
products at standalone level, it has still emerged as the second largest non-bank
gold loan financier in India with standalone asset under management (AUM) of
Rs206bn and operations across 29 states/union territories through 3,500 branches
as on March 31, 2021.
 Manappuram is currently following a theme called “innovating for the new normal”
wherein it is constantly making investments in digital and technological capabilities
to adapt to the constantly changing world. It was the pioneer in launching online
gold loan (OGL). As on Mar-21, around 54% of gold loan AUM is online for
Manappuram. It also launched doorstep gold loan scheme during covid where
customers can avail gold loans while sitting at homes. The company offers these
services through its web portals and mobile applications. In terms of digital
initiatives, it is focused on four areas namely (1) digitising operations for scale,
mobile interfaces for servicing customers, (2) unified data architecture, (3)
analytics for single customer view, and (4) leveraging new technologies for new
businesses.

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 Manappuram Finance, October 18, 2021 ICICI Securities

Diversified business model

Manappuram has also diversified into other lending products much before Muthoot
Finance by making certain acquisitions. This was primarily done to counter the
cyclicality in gold loan business, put the available excess capital in other businesses
and to become a diversified company rather than a pure play gold financing business.
Key subsidiaries of Manappuram Finance are as follows:

Table 1: Key subsidiaries of Manappuram Finance

Manappuram Finance acquired this company in FY14. However, the company’s name at that point of time was
Milestone Housing Finance Company. It is a wholly-owned subsidiary of Manappuram Finance and started operations
in January 2015 with focus on affordable housing loans and aims to cater to the needs of mid-income to low-income
group.
Manappuram Home
Finance Ltd
Positioned as an affordable home finance company, target customers are the self-employed ones from the
(Manappuram Home)
unorganised sector and others lacking access to credit facilities from mainstream financial institutions. It offers two
products – home loans and loan against property. The average ticket size of a home loan is Rs1.05mn, and for LAP
segment, it stands at Rs0.63mn.
As on March 31, 2021, its AUM stood at Rs6.7bn with 47 branches across 9 states.
Asirvad Micro Finance Limited, an NBFC operating as a microfinance institution (NBFC-MFI) is a majority-owned
subsidiary of Manappuram Finance. Asirvad Micro Finance Limited provides mainly three types of loans namely
income generating programme loans (IGP), product loans and MSME loans. Mr. SV Raja Vaidyanathan, who was the
Asirvad Microfinance Ltd managing director until June 30, 2021, started this company in 2007. Mr. Ravindra Babu is its current managing
(Asirvad) director. Manappuram Finance acquired this company in February 2015 and it currently holds around 94.78% stake in
the company.

Its AUM stood at Rs60bn with presence in 24 states/UTs through 1,062 branches as on March 31, 2021.
Manappuram Insurance Manappuram Finance acquired this company in FY15 and made it its wholly-owned subsidiary. It is an Insurance
Brokers Limited Regulatory and Development Authority of India (IRDAI) registered broker in the category ‘Direct’ for life and general
(MAIBRO) insurance business.
Source: Company report, I-Sec research

Table 2: Key financial highlights of subsidiaries

FY 18 FY 19 FY 20 FY 21
AUM (Rs Mn)
Asirvad 24,372 38.408 55,026 59,846
Manappuram Home Finance 3,747 5,188 6,296 6,663
GNPA (%)
Asirvad 2.3 0.5 1.8 2.5
Manappuram Home Finance 4.8 3.9 4.9 6.8
Networth (Rs Mn)
Asirvad 2,787 8,044 10.395 10,554
Manappuram Home Finance 863 1,900 1,998 2,097
Debt (Rs Mn)
Asirvad 20,824 34,180 45,006 46,272
Manappuram Home Finance 2,868 3,462 4,298 4,393
PAT (Rs Mn)
Asirvad -93 1,516 2,353 169
Manappuram Home Finance -45 30 106 103
RoE (%)
Asirvad -3,4 28.0 25.5 1.6
Manappuram Home Finance -5.0 2.2 5.4 5.0
Source: Company report, I-Sec research

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Company highlights
Table 3: Key milestones achieved
Period Milestone
The beginnings o Incorporated in Valapad village in Thrissur
(1992-2000) o First public issue of shares for Rs17.5mn with listing on the Bombay, Madras and Cochin stock exchanges
o RBI permits accepting public deposits
o Major policy change sees MAFIL shifting its focus to gold loans
Laying the o Commences forex business with moneychanger’s licence from the RBI
foundation o Declares rights issue in 2003
(2001-2005) o Attracts institutional funding for the first time with ICICI Bank sanctioning working capital facility of Rs250mn under a
‘bilateral assignment’
Strengthening the o Fullerton India / Temasek sanctions credit limit of Rs500mn, enhances the limit to Rs4.8bn within a year
foundation o Receives foreign institutional investment (FII) of Rs700mn from Sequoia Capital and Hudson Equity Holdings
(2006-2010) o Total business volumes of Rs10bn in 2008
o Total business volumes cross Rs50bn in 2010
o Raises Rs1.25bn through QIP
o Opens its 1,001st branch in Thrissur
Expanding o AUM grows to Rs75bn in 2011 and crosses Rs100bn in 2012
(2011-2015) o Branch network reaches 2,908, with more than 850 branches added in 2012
o Pioneers introduction of shorter tenure loans (3-9 months) with lower loan-to-value (LTV) for longer tenure loans based
on RBI stipulation on LTV
o Acquires ownership of Milestone Home Finance Private Limited from Jaypee Hotels
o Diversifies into home loan and commercial vehicle finance segments
o Acquires Asirvad Micro Finance
o Introduces online gold loan (OGL) in October 2015 (first in the industry)
Preparing for the o Acquires 100% ownership of Manappuram Insurance Brokers
future o Reaches 5.1mn live customers
(2016-2021) o Expands reach to a total of 24 states and 4 union territories with 4,637 branches
o Commercial vehicles business achieves Rs10bn AUM
o Microfinance business enters the North Eastern region
o Introduces OGL and Doorstep gold loan mobile application
o First issue of US dollar bonds (US$300mnn) listed on Singapore stock exchange
Source: Company report, I-Sec research

Table 4: Credit ratings

Manappuram Finance Ltd Asirvad Micro Finance Ltd Manappuram Home Finance Ltd
Long term: AA/Stable by CRISIL Long term: AA-/Stable by CRISIL Long term: AA-/Stable by CRISIL
Long term PP-MLD: Aar/Stable by Long term: AA-/Stable by Brickwork Short term: A1+ by CRISIL
CRISIL
Long term: AA+/Stable by Brickwork Long term: A+/Stable by CARE Long term: AA-/Stable by CARE
Long term: AA/Stable by CARE Short term: A1+ by CRISIL Long term: AA-/Stable by Brickwork
Short term: A1+ by CARE
CP: A1+ by CRISIL, CARE
Source: Company report, I-Sec research
Note: AA rating category indicates highest degree of safety regarding timely servicing of financial obligation. Such
instruments carry lowest credit risk. Note: A rating category indicates adequate degree of safety regarding timely
servicing of financial obligation. Such instruments carry lowest credit risk.
Note: A1 short term rating category indicates very strong degree of safety regarding timely servicing of financial
obligation. Such instruments carry lowest credit risk.

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Manappuram Finance, October 18, 2021 ICICI Securities
Table 5: Details of Board of Directors and key management personnel
Name Designation
Experience
Jagdish Capoor Independent
Mr. Jagdish Capoor has over 40 years of experience in banking and finance. He is the former Deputy Governor of
and Non- the RBI; former Chairman of HDFC Bank, Deposit Insurance and Credit Guarantee Corporation of India, Unit
executiveTrust of India and BSE, and a Director on the Boards of several commercial banks. Currently, he is on the Boards
Chairman of LICHFL Trustee Company Private Limited, LIC Pension Fund Limited, SPANDANA SPHOORTHY Financial
Ltd, LIC Housing Finance Limited, HDFC Securities Limited, Fintech Products and Solutions (India) Private
Limited, Finsec AA Solutions Private Limited.
VP Nandakumar Promoter, Mr. VP Nandakumar is a post-graduate in science with additional qualifications in banking and foreign trade.
Managing Immediately after completing his education, he joined the erstwhile Nedungadi Bank. In 1986, he resigned to take
Director and over the family business, following the demise of his father, VC Padmanabhan. In 1992, he promoted MAFIL
Chief Limited and has been a Director of the Company since then. Mr. Nandakumar is a managing committee member
Executive of leading trade and industry associations such as Associated Chambers of Commerce (ASSOCHAM) and
Officer Federation of Indian Chambers of Commerce (FICCI). He is also a former Chairman of the Kerala State Council
of the CII and a finalist at the EY Entrepreneur of the Year Awards 2017.

BN Raveendra Non- Mr. BN Raveendra Babu holds a master’s degree in commerce from the Calicut University. Before Manappuram
Babu executive Group, Mr. Babu occupied senior positions in finance and accounts in various organisations in the Middle East.
Director, He has been a Director of MAFIL since 1992. He was appointed the Joint Managing Director in January 2010 and
MD-MFI was made Executive Director in May 2012. He was re-designated as Non-Executive Director of the company with
effect from June 2020, pursuant to his appointment in Asirvad Micro Finance Limited as Joint Managing Director.

P. Manomohanan Independent Mr. P Manomohanan holds a bachelor’s degree in commerce from the Kerala University and a diploma in
and Non- industrial finance from the Indian Institute of Bankers. He has over 38 years of experience in the RBI and in
executive regulatory aspects of NBFCs. He retired as General Manager of the RBI, Department of Banking Supervision,
Director Trivandrum, and served on the Boards of South Indian Bank and Federal Bank.

VR Independent Mr. V R Ramchandran holds a bachelor’s degree in science from the Calicut University and a bachelor’s degree
Ramanchandran and Non- in Law from the Kerala University. He has over 32 years of experience and is a civil lawyer enrolled with the
executive Thrissur Bar Association.
Director
Gautam Narayan Non- Mr. Gautam Narayan is a chartered accountant with a post-graduate diploma in management from IIM,
Independent Ahmedabad. He is a Partner with Apax Partners and leads investments in financial services and business
and Non- services in India. He is actively involved in the not-for-profit sector and contributes in a Board / Advisory capacity
executive to Mann Deshi Foundation (focused on development of women entrepreneurs in rural Maharashtra) and Toolbox
Director India Foundation (focused on capacity building services). He was recognised among the 40 under 40 business
leaders by the Economic Times in 2017.

Sutapa Banerjee Independent Ms. Sutapa Banerjee is a gold medalist in economics from the XLRI School of Management, and an economics
and Non- graduate from the Presidency College, Kolkata. She has spent close to 24 years in financial services industry in
executive two large multinational banks, ANZ Grindlays and ABN AMRO, and a boutique Indian investment bank, Ambit
Director where she built and headed several businesses. She was voted as one of the ‘Top 20 Global Rising Stars of
Wealth Management’ by the Institutional Investor Group in 2007 – the only Indian and the second from Asia.

Abhijit Sen Independent Mr. Abhijit Sen retired as Chief Financial Officer of Citibank, India Subcontinent in 2015 after serving the
and Non- organisation for almost 20 years. Post retirement, he is associated with a large Big 4 firm as an External Advisor
executive for their activities in banking and financial services sector. He serves on several Boards including Kalyani Forge
Director Ltd., Trent Ltd., Ugro Capital, Ujjivan Micro-Finance Ltd. and Cashpor Microcredit. He also chairs the Audit
Committees of Kalyani Forge Ltd., Tata Investment Corporation and Ugro Capital, in addition to participating in
several other Board Committees.

Harshan Kollara Independent Mr. Harshan Kollara is an experienced financial services professional with over 40 years of experience in banking
and Non- and financial services in India and abroad. He has been with diverse institutions like Union Bank of India, ICICI
executive Bank (EVP and Head of International Banking), Union Bank of California (Vice President and Regional Head of
Director South Asia Region) and Federal Bank (Executive Director). He has been the Non-Executive Director of Experian
Credit Information. He has extensive experience in foreign exchange, cross-border trade finance, payment
business, consumer credit, core banking application system implementation, and compliance including anti-
money laundering (AML), counter-terrorism financing (CTF) and financial crime prevention practices.

Shailesh J. Independent He has over 45 years of work experience and has held the positions of President, Granite Hill Capital Ventures;
Mehta Non- Chairman and Chief Executive Officer, Providian Financial Corporation; Operating General Partner, West Bridge
Executive Capital; President and Chief Operating Officer, Capital Holding Insurance group; and Executive Vice President,
Director Key Corp. He has also served on the US Board of MasterCard International, Board of PayPal Inc, Chairman of
FirstSource Solutions and Trustee of California State University System. He is the founder of Shailesh J Mehta
School of Management at IIT Bombay.

S.R. Additional Mr. S.R. Balasubramanian has over 43 years of experience in the field of information technology in various
Balasubramanian director capacities, out of which 35 years are in the IT space of BFSI. He was the former VP of Citibank and has worked in
India, Singapore and Kenya. He played a key role as Technology Head for implementing Cash Management
Technology in Citibank during the early 90s. He was with HDFC Bank for over 7 years as Senior VP and moved
to IT Advisory role for few banks in India and was Business Advisor to a software company and served there for 4

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 Manappuram Finance, October 18, 2021 ICICI Securities
years. He was the former Board member of Quantum Asset Management Company (P) Ltd since 2010 and
completed the Board term on August 2020. Currently, he is the member of Information Security Committee of
Quantum AMC and provides his service as an external expert.

Bindu A L Chief Fellow member of the Institute of Chartered Accountants of India, having 21 years of work experience in various
Financial capacities.
Officer
Manoj Kumar VR Company Fellow member of the Institute of Company Secretaries of India, having 14 years of experience as a Company
Secretary Secretary.

Senthil Kumar Head – Over 24 years’ experience with organisations such as Fullerton India, HDFC Bank, Citicorp etc.
Vehicle and
Equipment
Finance
Suveen PS CEO – B. Tech graduate in applied electronics & instrumentation engineering and masters in embedded system with 6
Housing years of experience in operations.
Finance
Source: Company report, I-Sec research

Table 6: Details of key committees

Board of Directors Designation Nomination & Risk Asset Liability Audit
Remuneration Management Management Committee
committee Committee Committee
Jagdish Capoor Independent and Non-executive Chairman Yes Yes Yes
V. P. Nandakumar Promoter, Managing Director and Chief Yes Yes
Executive Officer
B. N. Raveendra Babu Non-executive Director, MD-MFI Yes Yes
P. Manomohanan Independent and Non-executive Director Yes Yes
Gautam Narayan Non-Independent and Non-executive Director Yes Yes Yes
Sutapa Banerjee Independent and Non-executive Director Yes Yes Yes
Abhijit Sen Independent and Non-executive Director Yes Yes
Harshan Kollara Independent and Non-executive Director Yes Yes
Shailesh J. Mehta Independent Non-Executive Director Yes Yes Yes
Bindu A L Chief Financial Officer Yes
Madhu Mohan A.M Chief Risk Officer Yes
Source: Company report, I-Sec research

Table 7: Shareholding pattern

Category No. of Shares % of holding
Promoter and promoter group 29,61,56,139 34.99
Mutual Fund 8,20,31,850 9.69
Alternate Investment Funds 68,31,835 0.81
Foreign Portfolio Investor 30,34,78,116 35.86
Financial Institutions / Banks 28,00,306 0.33
Insurance Companies 12,96,979 0.15
Others including Public 15,37,69,504 18.17
Total 84,63,64,729 100.00
Source: BSE, I-Sec research, As on June 30, 2021

Table 8: Details of promoter and promoter family’s remuneration

For the financial year Rs mn % of consolidated PBT
2015-16 51.3 0.9
2016-17 76.54 0.7
2017-18 85.4 0.8
2018-19 123.7 0.9
2019-20 110 0.5
2020-21 150 0.6
Source: Company report, I-Sec research

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Manappuram Finance, October 18, 2021 ICICI Securities

Valuation
We value Manappuram Finance by using SoTP valuation methodology. We have used
suitable multiples for each business and have applied the same on average book
value of FY23E and FY24E. For all businesses other than gold loan business, we
have used price to book multiple of 1x considering the limited track record. Whereas to
arrive at the P/B multiple for gold business, we have used reconciliation of three
methods, which are as following:

1. Residual income method for consolidated business with CoE assumed at 12.7%
with explicit forecast of 9 years and then using terminal value post that. We have
assumed 5% increase in residual income for calculating terminal value. The
multiple arrived through this method on consolidated business is used for gold
business as it is expected to be the primary driver of the overall group.
2. Two stage Gordon growth model for estimating price-book ratios from
fundamentals with 15 years of high growth stage and stable growth stage post that
on consolidated business. In this case as well, we have assumed CoE to be
around 12.7% with around 15% growth in book value during high growth stage
with RoE of around 19%. For stable period, we have assumed 5% growth in book
value along with RoE nearing the level of around 14%. The multiple arrived
through this method on consolidated business is used for gold business as it is
expected to be the primary driver of the overall group.
3. Trend of historical price to forward book value chart.
In addition, to arrive at net worth used for gold loan business, we have deducted
consolidated net worth (including minority interest) from other businesses’ net worth.
Net worth for vehicle finance and other financing products at standalone level has
been arrived at by assuming 4 and 2 times debt to equity for both businesses,
respectively.

The result of all three valuation methods are as follows:

1. Residual valuation method gives a multiple of 2.1 times on Sep’23 book value
(average of FY 23 [E] and FY 24 [E] book value).
2. 2 stage Gordon growth model leads to 2.3x P/B multiple.
3. Historical trend of price to forward book value provides an average multiple of 1.4
times on forward book value.
Final multiple of 2.2 times for gold business has been arrived at by taking the average
of multiple given by residual valuation method and 2 stage Gordon growth model. Like
Muthoot, we have not used historical trend of forward multiple as we believe that
historical trend of forward P/B multiple does not give a true picture of future growth
potential of the company.

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 Manappuram Finance, October 18, 2021 ICICI Securities
Table 9: Manappuram Finance valuation
Multiple Base (Rs Mn) BV per share Share in the entity Value per share
Gold Finance 2.2* 93,674 111 100% 248
Asirvad 1.0 17,438 21 97.51% 20
Manappuram Home Finance 1.0 2,468 3 100% 3
Vehicle Finance 1.0 4,610 5 100% 5
Other lending business at standalone level 1.0 3,058 4 100% 4
Target Price 280
Source: I-Sec research *Rounded off

Chart 10: Manappuram Finance historical trend of one year forward P/BV
(standalone)
3.00

2.50

2.00

1.50

1.00

0.50

-
Mar-13

Mar-14

Mar-16

Mar-18

Mar-19

Mar-21
Mar-15

Mar-17

Mar-20
Sep-13

Sep-14

Sep-16

Sep-17

Sep-19

Sep-21
Sep-12

Sep-15

Sep-18

Sep-20
1Yr Fwd PBV Avg -1SD +1SD -2SD +2SD
Source: I-Sec research

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Manappuram Finance, October 18, 2021 ICICI Securities

Key Risks in the Business

 Steep fall in gold prices: It can have two-fold impact. Steep fall in gold prices can
lead to fall in ticket sizes leading to impact on AUM growth. Secondly, lower resale
value due to steep fall in gold prices can discourage customers to repay their
obligations leading to company having to incur losses due to lower realization
through auctions.
 Increasing competitive intensity: Along with banks and other NBFCs, the gold
business is also exposed to risk from other types of products such as unsecured
personal loans and unsecured business loans which could have an impact on
AUM growth, yields and hence on earnings.
 High geographical concentration: Like Muthoot, Manappuram’s gold loan
portfolio is also geographically concentrated as more than 50% of its gold loan
portfolio continues to be in southern states, therefore, exposing it to concentration
risk.
 Regulatory risk: Regulatory changes that took place during 2012-13 had a
significant impact on all the gold loan NBFCs. While these companies have
recovered from those changes, any sudden regulatory changes in terms of pricing,
processes or margins can lead to negative impact on Manappuram’s business.
 Limited track record of non-gold business: Manappuram’s non-gold business
portion is more than Muthoot’s in terms of consolidated AUM as around 30% of
consolidated AUM of the group is non-gold. The track record and seasoning of the
portfolio in these businesses is limited and these businesses are different from
gold loan businesses, therefore, they require special attention. Hence, any
challenges faced in these businesses can lead to credit losses for the group at
consolidated level, therefore, impacting the earnings.
 Lack of clarity around succession plan: Mr. V.P. Nandakumar (67 years),
promoter, is the MD & CEO of the Manappuram Finance. Unlike Muthoot Finance
wherein promoters’ children have started to get involved in the business, it does
not seem like the case in Manappuram. While the company has very experienced
second line of management and well defined polices and processes across
businesses, there is less clarity around succession plan within the company which
poses the risk of company getting derailed in case of appointment of less
experienced top level management.
 Few notable past issues of the company: In 2012, RBI had issued warning to
general public against placing deposits in either Manappuram Finance or a group
company as it was against regulations as allegedly the company was accepting
deposits from public in its branches and had been issuing deposit receipts in the
name of Manappuram Agro Farms, a sole proprietary concern of VP Nandakumar,
the promoter [Click here]. Similarly, SEBI settled an alleged insider trading case
with Manappuram and 5 individuals regarding the matter of communicating
unpublished price sensitive information to market participants before disclosing the
same to stock exchange in March 2013 [Click here]. While we believe that the
company has a well-defined corporate governance policy with good presence of
independent directors in various committees and reputed top management,
however, such issues pose a risk to the public image of the company.

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Financial summary (standalone)

Table 11: Income statement
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Interest Income 28,820 33,566 41,939 50,812 52,415 61,476 71,617 83,414
Interest expense 7,944 10,178 13,912 17,200 16,951 19,193 22,004 25,534
Net interest income 20,876 23,388 28,027 33,612 35,464 42,284 49,613 57,880

Non-Interest 713 706 1,583 1,123 1,471 1,722 2,010 2,344

income

Total net income 21,589 24,094 29,610 34,735 36,934 44,006 51,623 60,224

Operating 10,551 11,657 11,961 10,741 11,581 13,318 15,209 17,720

expenses

PPOP 11,038 12,437 17,649 23,995 25,353 30,688 36,414 42,504

Provisions 484 260 848 1,299 1,598 1,888 1,532 1,317

PBT 10,554 12,177 16,800 22,696 23,756 28,800 34,882 41,186

Tax 3,663 4,273 4,497 5,716 6,652 8,064 10,465 12,356
PAT 6,891 7,905 12,303 16,979 17,104 20,736 24,417 28,831
EPS 8.2 9.4 14.6 20.1 20.2 24.5 28.8 34.1
DPS 2.4 2.6 3.3 1.2 4.0 4.9 5.8 6.8
Source: Company data, I-Sec research

Table 12: Balance sheet

(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Liabilities
Share capital 1,685 1,686 1,690 1,693 1,693 1,693 1,693 1,693
Reserves and surplus 36,441 42,236 51,869 67,325 81,030 97,645 1,17,209 1,40,309
Networth 38,126 43,922 53,559 69,017 82,723 99,338 1,18,902 1,42,002

Borrowings 1,02,378 1,27,426 1,75,061 1,76,403 2,00,295 2,26,211 2,57,393 2,97,699

Other liabilities 5,427 5,112 9,406 11,119 12,231 13,699 15,480 17,338

Total Liabilities 1,45,931 1,76,460 2,38,026 2,56,540 2,95,249 3,39,248 3,91,774 4,57,038

Assets
Net Block 2,651 3,266 3,382 3,058 3,976 4,771 5,725 6,871
Loans 1,28,407 1,50,052 1,88,421 2,10,594 2,44,360 2,87,288 3,34,611 3,92,963
Other assets 14,873 23,142 46,223 42,888 46,913 47,188 51,438 57,205

Total Assets 1,45,931 1,76,460 2,38,026 2,56,540 2,95,249 3,39,248 3,91,774 4,57,038
Source: Company data, I-Sec research

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Table 13: RoE Du-pont
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Gross AUM 1,29,529 1,50,789 1,90,929 2,05,733 2,38,463 2,80,326 3,26,600 3,83,307
Interest Income 20.8% 20.8% 20.2% 20.5% 19.0% 19.4% 19.6% 19.7%
Interest Expense 5.7% 6.3% 6.7% 7.0% 6.1% 6.0% 6.0% 6.0%
Net Interest Income 15.1% 14.5% 13.5% 13.6% 12.9% 13.3% 13.6% 13.6%
Other Income 0.5% 0.4% 0.8% 0.5% 0.5% 0.5% 0.5% 0.6%
Total Net Income 15.6% 14.9% 14.3% 14.0% 13.4% 13.9% 14.1% 14.2%
Operating Expenses 7.6% 7.2% 5.8% 4.3% 4.2% 4.2% 4.2% 4.2%
Pre Provision Operating Profit 8.0% 7.7% 8.5% 9.7% 9.2% 9.7% 10.0% 10.0%
Provisions 0.3% 0.2% 0.4% 0.5% 0.6% 0.6% 0.4% 0.3%
PBT 7.6% 7.6% 8.1% 9.2% 8.6% 9.1% 9.5% 9.7%
Tax 2.6% 2.7% 2.2% 2.3% 2.4% 2.5% 2.9% 2.9%
Reported PAT 5.0% 4.9% 5.9% 6.9% 6.2% 6.5% 6.7% 6.8%
Leverage (average 3.9 3.9 4.3 4.0 3.6 3.5 3.3 3.3
assets/average equity)
RoE 19.3% 19.3% 25.2% 27.7% 22.5% 22.8% 22.4% 22.1%
Source: Company data, I-Sec research

Table 14: Key ratios

(Year ending Mar 31)
Valuations FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
EPS 8.2 9.4 14.6 20.1 20.2 24.5 28.8 34.1
BVPS 45.3 52.1 63.4 81.5 97.7 117.4 140.5 167.8

Yields, Interest income & spreads

Yield on AUM 23.5% 23.9% 24.5% 25.6% 23.6% 23.7% 23.6% 23.5%
Cost of funding 8.2% 8.9% 9.2% 9.8% 9.0% 9.0% 9.1% 9.2%
NIM on AUM 17% 17% 16% 17% 16.0% 16.3% 16.3% 16.3%

Operating efficiency
Cost to income 48.9% 48.4% 40.4% 30.9% 31.4% 30.3% 29.5% 29.4%
Opex to AUM 8.6% 8.3% 7.0% 5.4% 5.2% 5.1% 5.0% 5.0%
AUM per branch (Rs Mn) 38.9 44.7 54.1 58.4 67.1 77.9 90.3 104.8

Asset Quality
GNPA 0.5% 0.5% 0.9% 1.9% 1.8% 1.0% 1.0% 0.9%
NNPA 0.3% 0.3% 0.6% 1.4% 1.4% 0.6% 0.6% 0.5%
Credit cost on AUM 0.4% 0.2% 0.5% 0.7% 0.7% 0.7% 0.5% 0.4%

Profitability
ROAA 5.0% 4.9% 5.9% 6.9% 6.2% 6.5% 6.7% 6.8%
ROE 19.3% 19.3% 25.2% 27.7% 22.5% 22.8% 22.4% 22.1%

Capital
Tier 1 26.6% 23.3% 21.4% 28.7% 28.2% 29.1% 30.3% 31.2%
Tier 2 0.4% 0.4% 0.3% 0.3%
RWA/ Total Assets 96.4 93.3 86.1 89.1 94.0 96.0 96.0 96.0
Source: Company data, I-Sec research

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Manappuram Finance, October 18, 2021 ICICI Securities

Financial summary (consolidated)

Table 15: Income statement
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Interest Income 33,190 39,161 51,445 60,746 64,221 76,638 89,521 1,04,419
Interest expense 10,304 13,194 18,322 22,189 22,289 25,537 29,495 34,040
Net interest income 22,886 25,966 33,123 38,557 41,932 51,101 60,026 70,379

Non-Interest income 1,602 2,628 4,067 3,000 3,203 4,035 4,837 5,762

Total net income 24,487 28,594 37,190 41,557 45,135 55,136 64,863 76,141

Operating expenses 12,345 13,860 14,740 13,996 15,254 17,714 20,400 23,718

PPOP 12,142 14,734 22,449 27,561 29,881 37,422 44,463 52,423

Provisions 1,773 461 2,376 4,401 4,513 3,104 3,212 3,635

PBT 10,369 14,273 20,073 23,160 25,368 34,318 41,250 48,788

Tax 3,609 4,978 5,270 5,911 7,126 9,711 12,369 14,631
PAT 6,760 9,295 14,803 17,250 18,242 24,606 28,882 34,157
PAT after minority interest 6,767 9,224 14,678 17,243 18,151 24,483 28,737 33,986
EPS 8.0 10.9 17.4 20.4 21.5 28.9 34.0 40.2
DPS 2.4 2.6 3.4 1.3 4.0 4.9 5.8 6.8
Source: Company data, I-Sec research

Table 16: Balance sheet

(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Liabilities
Share capital 1,685 1,686 1,690 1,693 1,693 1,693 1,693 1,693
Reserves and surplus 36,447 43,561 55,771 71,382 86,231 1,06,721 1,30,757 1,59,191
Networth 38,132 45,247 57,461 73,074 87,923 1,08,414 1,32,449 1,60,884

Minority Interest 292 459 583 472 563 686 831 1,002
Borrowings 1,26,071 1,52,972 2,18,167 2,27,163 2,54,651 2,93,523 3,36,536 3,88,184
Other liabilities 5,801.6 5,861.9 13,300.3 12,668.8 13,730.4 15,207.7 17,007.1 18,892.8

Total Liabilites 1,70,296 2,04,540 2,89,511 3,13,378 3,56,867 4,17,831 4,86,823 5,68,962

Assets
Net Block 2,745 3,318 3,514 3,219 4,100 4,919 5,902 7,082
Loans 1,52,439 1,78,119 2,31,893 2,65,076 3,05,872 3,62,508 4,23,636 4,96,208
Goodwill 356 356 356 356 356 356 356 356
Other assets 14,757 22,747 53,749 44,727 46,540 50,048 56,929 65,316

Total Assets 1,70,296 2,04,540 2,89,511 3,13,378 3,56,867 4,17,831 4,86,823 5,68,962
Source: Company data, I-Sec research

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Manappuram Finance, October 18, 2021 ICICI Securities
Table 17: RoE Du-pont
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
Gross AUM (Rs Mn) 1,57,648 1,94,384 2,52,252 2,72,242 3,12,819 3,69,334 4,31,458 5,04,843
Interest Income 20.6% 20.9% 20.8% 20.2% 19.2% 19.8% 19.8% 19.8%
Interest Expense 6.4% 7.0% 7.4% 7.4% 6.7% 6.6% 6.5% 6.4%
Net Interest Income 14.2% 13.9% 13.4% 12.8% 12.5% 13.2% 13.3% 13.3%
Other Income 1.0% 1.4% 1.6% 1.0% 1.0% 1.0% 1.1% 1.1%
Total Net Income 15.2% 15.3% 15.1% 13.8% 13.5% 14.2% 14.3% 14.4%
Operating Expenses 7.7% 7.4% 6.0% 4.6% 4.6% 4.6% 4.5% 4.5%
Pre Provision Operating Profit 7.5% 7.9% 9.1% 9.1% 8.9% 9.7% 9.8% 9.9%
Provisions 1.1% 0.2% 1.0% 1.5% 1.3% 0.8% 0.7% 0.7%
PBT 6.4% 7.6% 8.1% 7.7% 7.6% 8.9% 9.1% 9.2%
Tax 2.2% 2.7% 2.1% 2.0% 2.1% 2.5% 2.7% 2.8%
Reported PAT 4.2% 5.0% 6.0% 5.7% 5.4% 6.4% 6.4% 6.5%
Leverage (average 4.5 4.5 4.8 4.6 4.2 3.9 3.8 3.6
assets/average equity)
RoE 18.8% 22.3% 28.8% 26.4% 22.7% 25.1% 24.0% 23.3%
Source: Company data, I-Sec research

Table 18: Key ratios

(Year ending Mar 31)
Valuations FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E
EPS 8.0 10.9 17.4 20.4 21.4 28.9 34.0 40.2
BVPS 45.3 53.7 68.0 86.3 103.9 128.1 156.5 190.1

Yields, Interest income & spreads

Yield on AUM 22.6% 22.2% 23.0% 23.2% 22.0% 22.5% 22.4% 22.3%
Cost of funding 8.7% 9.5% 9.9% 10.0% 9.3% 9.3% 9.4% 9.4%
NIM on AUM 15.6% 14.8% 14.8% 14.7% 14.3% 15.0% 15.0% 15.0%

Operating efficiency
Cost to income 50.4% 48.5% 39.6% 33.7% 33.8% 32.1% 31.5% 31.1%
Opex to AUM 8.4% 7.9% 6.6% 5.3% 5.2% 5.2% 5.1% 5.1%

Asset Quality
GNPA (Asirvad) 2.3% 0.5% 1.8% 2.5% 3.4% 2.1% 2.0% 2.1%
NNPA (Asirvad) 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
GNPA ( Home Finance) 4.8% 3.9% 4.9% 6.8% 6.4% 5.4% 4.7% 4.4%
NNPA ( Home Finance) 4.0% 3.1% 3.8% 5.2% 5.0% 4.2% 3.4% 3.1%
Credit cost on AUM 1.2% 0.3% 1.1% 1.7% 1.5% 0.9% 0.8% 0.8%
(Consolidated)

Profitability
ROAA 4.2% 5.0% 6.0% 5.7% 5.4% 6.4% 6.4% 6.5%
ROE 18.8% 22.3% 28.8% 26.4% 22.7% 25.1% 24.0% 23.3%
Source: Company data, I-Sec research

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Gold loan, October 18, 2021 ICICI Securities
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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise)
BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from
the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage
services or other advisory service in a merger or specific transaction.
ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage
services from the companies mentioned in the report in the past twelve months.
ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its
associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation
of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of
this report.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the
report as of the last day of the month preceding the publication of the research report.
Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or
beneficial ownership in various companies including the subject company/companies mentioned in this report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other
jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any
registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain
category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. has reviewed the report and, in so far as it includes current or historical
information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

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