While gold loan business generally runs on cash, MUTH has significant amount of non-cash business too. Management indicated that around 50% of disbursements and 60% of repayments are via non-cash modes
While gold loan business generally runs on cash, MUTH has significant amount of non-cash business too. Management indicated that around 50% of disbursements and 60% of repayments are via non-cash modes. Additionally, cash repayments by customers are being re-disbursed. Management also points to increased re-pledging of gold among customers.
The company is using this opportunity to sensitise and educate customers to use the online platform. Moreover this move will benefit the company in long run as some of the unorganised business (75% of total gold loan market) will shift to organised players.
MUTH is the largest organised player in the gold loan financing sector.
With benign competition, improved currency circulation and stable gold prices, we expect the company’s growth to pick up from FY18. Given that a significant portion of the company’s operating costs is fixed, a rebound in the business will lead to optimum utilisation of existing infrastructure.
We expect RoE to cross 20% by FY19.
We cut our EPS estimates for FY17/18 by 8%/10% to factor in muted growth and increased operating expenses in 2HFY17, but believe that recent stock price correction offers a good entry opportunity. We use RI model, with Rf of 7.25%, CoE of 13.3% and terminal growth rate of 5%, to arrive at a target price of Rs 373 (1.9x Sep2018E BV). Maintain buy.