Muthoot Finance

Oct 14, 2013 1 Comment by




Research Report on Muthoot Finance

Name – Muthoot Finance

Sector – Finance

Market Cap – Rs 4882 Cr

Sales Turnover in Jan-Mar 2013– Rs 1411 Cr

Profit in Jan-Mar 2013 – Rs 220 Cr



Muthoot Finance Ltd is the largest gold company in India. The company provides personal and business loans secured by gold jewellery, or Gold Loans, primarily to individuals who possess gold jewellery but could not access formal credit within a reasonable time, or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements. The company is headquartered in Kerala. In addition to their Gold Loans business, the company provides money transfer services through their branches as sub-agents of various registered money transfer agencies.


It posted a 6 percent fall in net profit to Rs 220 crore for the quarter ended March 31, 2013, compared to Rs 235 crore in the same period last year. Total income of the company rose to Rs 1,411 crore in the quarter, from Rs 1,294 crore in the year ago period. For the full financial year ended March 31, it reported a growth rate of 13 percent in net profit to Rs 1004 crore. In the previous fiscal the profit was Rs 892 crore.


Seeing the rising Current Account Deficit (CAD), recently RBI imposed a ban on Banks and NBFC’s for providing loan against gold coins as well as gold ETFs and MF units of gold mutual funds. Also, the maximum limit for gold coin loans is 50 gm per person.

RBI also barred companies from giving loans exceeding 60% of the present value of gold jewellery provided as collateral.

To curb gold import and counter the increasing CAD, RBI had increased the import duty to 15% from 6%.  Also, RBI has prohibited jewellery companies from availing any kind of credit for importing the yellow metal. This will lead to decrease in purchases of gold jewellery and hence decrease in gold loans. However, the real monetary damage can’t be estimated at present.

The price of the yellow metal has been on a decline. So, a lot of borrowers are shunning their gold collateral as it’s value has become less than the loan value. This might lead to rise in the number of nonperforming assets for the company.


Muthoot Finance is the largest Gold Financing Company in India, started in 1939 by M. George Muthoot. The top esecutives have an experience of running the business well.


It has more than 4000 branches all over India. This is the third highest number of branches, next to SBI and PNB. This has provided a huge distribution system for the company. The majority of the branches are in South India – Tamil Nadu, Kerela, Karnataka and Andhra Pradesh. The South Indians are the major buyer of the yellow metal and hence potential customers of gold loans.

It does not give loans against gold coins or bullion. So, the restriction by RBI won’t have a major impact on the company. It gives loan only against gold ornaments. Majority of the loans are below Rs 1,00,000 with the average loan size being Rs 41,000. The total asset under management has increased to Rs 26387 crore. Presently, the company gives only 60% of the gold value as loan. So, a decrease in the gold price will still not take the value of the collateral below the loan value. Also, the company has a solid customer relationship service which tracks the interest repayment and the customers on a constant basis. The gold jewellery pledged also carries sentimental value for the customers. So, they are not willing to default on the loan and shun their gold ornaments. All this won’t let a huge increase in the number of defaulters.

The capital adequacy ratio, which is a measure of risk cover of the company, has increased to 19% from 18% last year. An increase in the ratio suggests that the company would be able to cover the risk in a better way.

NPAs are not an issue for the gold loan company because the NPA account is always fully collatarelised with gold. Credit loss is an important aspect for the company. The credit loss for the year has been Rs 13 crore, which is less than 1% of the total profit before tax.

Customers are also preferring NBFCs over banks for gold loans due to the low level of documentation, quick disbursal, higher amount of loan value (up to Rs 1 crore), no processing fees, no gold evaluation fees and flexibility in loan terms. With the new recommendation of RBI, the loan to value is supposed to increase to 75% from present 60%. But they charge a high interest of       20%-25% as they don’t have access to the low cost funds like the banks.

The banks as well as the retail investors are sitting on huge pile of gold. So, their cash are blocked, especially for the retail investors. In future the only option for them to raise money is through gold loans and Muthoot Finance is a good option for them.

It also launched a new advertising campaign, “ Prarthana – Sapne aapke, Prarthana hamari” ,which will increase the trust and credibility of the brand.

The promoters hold 80.1% shares of the company, FII + NRI hold 15.1% shares and DII hold 1.1% shares. As per SEBI, the promoters would need to bring down their stake to 75% which would lead to huge cash flow for the company.

Looking at the overview that gold prices are expected to increase in next 6 months to 1 year, the demand for gold loans will increase. The stock is beaten down at present. Keeping the long term view one could invest in this stock at levels of Rs 95.


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One Response to “Muthoot Finance”

  1. mayank raj says:

    What is credit loss?
    Also in normal cash loans from other banks is there any collateral? existing property or car …?

    Also the import has been raised :…/22663021.cms

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