(Muthoot) delivered steady Q3FY17 performance in an otherwise challenging quarter.
As against fears of gold loan companies bearing major brunt of demonetisation, Muthoot’s business practices helped it recover swiftly with: AUM growth of 8% y-o-y versus initial expectation of decline; and GNPLs rise restricted to 2.9% (2.2% in Q2FY17; a technical increase which management expects to recoup in Q4FY17).
Focus on cost efficiency persisted (opex/asset at sub-4.5% levels), thus supporting profitability. NIMs were softer on lower yields (lower collections, higher interest income reversal), though funding cost will benefit from retirement of long-term borrowings over next few quarters, which will help sustain/improve NIMs.
Revenue tailwinds, along with normalised auctions and controlled costs will enable Muthoot deliver >25% earnings CAGR over FY16-19E.AUM growth of ~8% y-o-y (to Rs 270 billion), though lower than 6% q-o-q run rate in past couple of quarters, was commendable amidst demonetisation.
The stock is trading at 1.6x FY19E P/ABV. We maintain ‘Buy/SO’ with a revised TP of R442 (R410 earlier), as we roll forward to FY19E.