Stable set of results from Muthoot Finance. Net profit at 867 crores, down 12% YoY | Q2 FY23 Conference Call Highlights

Business Highlights:

The company has been reclassified as an upper-layer NBFC by the RBI under the RBI NBFC Classification criteria.

The company has applied for Credit Card (disbursal Card) license from RBI. The same is under consideration process.

Expecting to reach the guided growth of 10% in AUM in FY23.

Gold Tonnage is impacted by gold prices. For the higher gold price, gold tonnage is lower, and vice versa.

Total Borrowing costs stood at 7.98% in 2QFY23. Expecting the cost to remain at similar levels (around 8%) in Q3FY23.

The company has guided for a Net Interest Margin in the range of 11-12%.

The Company started the Milligram Gold Program – The first such gold reward program for all its customers.

The company does not plan to reduce the advertisement and promotion expenses and expects them to remain at the current levels in subsequent quarters.   

The Auction during Q2FY23 stood at around 578 Crores.

Liquidity:

The Liquidity levels as on Sep'22 were kept higher because of the first tranche of ECB bonds of USD 450m that were due for maturity in Oct'22.

The Company does not want to keep higher liquidity and bear a higher negative carry.

It will prune its liquidity to reasonable levels while maintaining its LCR. The next tranche of ECB Bonds is due for maturity on Sep 1, 2023.

RBI approval for new Branches Opening:

The Company had received RBI approval for the first tranche of 150 branches.

24 new branches were opened until Sep'22 and it expects all the remaining branches to be opened until Dec'22.

It takes a year or two for the branch to stabilize while the branch starts sourcing business for the company from day1.

Majorly depends upon the location of the branch and the need of the people for taking the loans.

A branch becomes profitable or achieves break-even within 12 months of its opening.

Asset Quality:

Stage 3 Loan Assets at 955 Crores as of the end of the Sept 2022 quarter.  Stage 3 in percentage terms is 1.67%.

ECL Provision on Gross Loan Assets is 642 Crores, while it is 1.12% as of 30 Sept 2022.

The company holds an excess provision of 295 Crores.

The company has written off 4 Crores of Bad Debts in Q2 FY23.

Capital Adequacy Ratio

The Capital Adequacy Ratio is at 31.96% as of 30 Sept 2022.

Tier I Capital is 31.07% and Tier II is 0.89%.

Profitability:

Total AUM at 57,230 crores in Q2 FY23 vs 55,146 crores in Q2 FY22, growth of 4% YoY.

Interest Income at 2,476 Crores in Q2 FY23 vs 2,792 Crores in Q2 FY22, degrowth of 12% YoY.

Net Profit is at 867 crores in Q2 FY23 vs 995 Crores in Q2 FY22, a de-growth of 12% YoY.

Interest Spread at 11.99% in Q2 FY23 vs 9.37% in June 2022 quarter vs 10.91% in March 2022 quarter.

Net Interest Margin at 11.04% in Q2 FY23 vs 10.74% in Q1 FY23.

Return on Assets at 6.09% in Q2 FY23 vs 5.59% in Q1 FY23 vs 6.81% in Q4 FY22.