Muthoot Finance reported PAT of R180 crore, down 7% y-o-y and in line with our estimate of R179 crore. NII was stable y-o-y despite 17% y-o-y (2% q-o-q) decline in loan book to R21,400 crore expansion in NIM by 160 bps due to lower borrowing cost supported NII.
On the back of cost-rationalisation efforts of the management, operating expenses were up 8% y-o-y and down 7% q-o-q to R275 crore. Asset quality performance was stable with gross NPLs at 1.9%.
We expect Muthoots loan growth to pick up in the next 1-2 quarters and forecast moderate (7% y-o-y) loan growth in FY2015E followed by 17-18% y-o-y growth over the next two years.
While slowdown in loan book, coupled with recent capital issuance will reduce EPS in FY2015E (down 4% y-o-y), higher loan growth and strong NIM will drive 20% earnings growth in FY2016-17E. We expect the company to deliver 17-18% RoE in the medium term. Our growth forecasts factor stable gold prices, but are sensitive to gold price movements.
Kotak Institutional Equities