Muthoot Finance (MUTH IN) Steady quarter

Transcription

1 INSTITUTIONAL EQUITY RESEARCH Muthoot Finance (MUTH IN) Steady quarter INDIA BFSI Quarterly Update Top takeaways from Q3FY18 NII grew by 45% yoy to Rs 10.5bn, ahead of estimates, led by 442bps yoy expansion in NIMs to 15.1%, even as AUM growth remained moderate at just 4.8% yoy. The expansion in NIMs was largely led by: (1) collection in high overdue accounts, and (2) reduction in cost of funds ( 196bps yoy). AUM growth remained moderate at 4.8%, led by a combination of three factors: (1) 4% growth in gold stock, (2) 1.9% increase in LTV to 69.6%, and (3) 1.5% yoy decline in average gold prices. Consistent six quarters of sub 5% growth in gold stock implies slowdown in new customer addition, which is worrying. Operating expenses increased by 7.2% yoy to Rs 3.1bn, led by 3.2% increase in employee cost and just 6.3 % increase in other opex. Asset quality deteriorated further. GNPA ratio increased to 5.6% from 4.6% qoq, as the management is giving extra time for repayment to genuine customers on overdue accounts, rather that resorting to auctioning. Management comments / concall takeaways Wants to increase non gold portfolio s share to 10% by March 2018 and 15% by March 2019 from current 8%. Housing book will grow to Rs 14bn in FY18 and Rs 30bn in FY19 from Rs 4.5bn in FY17. Spike in NPA largely came from six month products, which were introduced in September Customers asked for few months extension for repayment, resulting in higher GNPAs 33% of the GNPAs are from the six month loan category. Auction in Q3 was lower at Rs 2.69bn vs. Rs 7.78bn in Q2. The management is focusing more on collection than auctioning gold on overdue accounts. NPA on 90dpd would have been higher by Rs 5bn. Guided for NIMs of 12%+ with RoA of 3.5% on a sustainable basis. Outlook and valuation: While the operational performance remained robust led by higher yields, consistent sub 5% growth in gold stock in the last six quarters is worrying. With LTVs already at a high 70%, a stable to declining gold price scenario could put pressure on AUM growth. While higher growth in non gold book will provide some cushion to overall AUM, its current share remains at just 8%. At CMP, the stock is trading at 1.6x FY20 BV with RoA of 4.5% and RoE of 18%. As we roll forward out target multiple to FY20, we have increased our price target to Rs 515 (from Rs 500 earlier) and hence upgrade the stock to BUY from Neutral. 9 February 2018 BUY (Upgrade) CMP RS 422 / TARGET RS 515 (+22%) COMPANY DATA O/S SHARES (MN) : 400 MARKET CAP (RSBN) : 157 MARKET CAP (USDBN) : WK HI/LO (RS) : 526 / 325 LIQUIDITY 3M (USDMN) : 5.1 PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Dec 17 Sep 17 Jun 17 PROMOTERS : FII / NRI : FI / MF : NON PRO : PUBLIC & OTHERS : Key Financials Rs mn FY17 FY18E FY19E Net Profit 17,462 16,493 17,329 % growth EPS (Rs) BVPS (Rs) ROE (%) ROA (%) P/E (x) P/BV (x) CHANGE IN ESTIMATES Revised Est. % Revision Rs bn FY19E FY20E FY19E FY20E NII PPP Core PAT EPS (Rs) Pradeep Agrawal, Manish Agarwalla and Paresh Jain (Rs mn) Q3FY18 Q3FY17 yoy % Q2FY18 qoq % vs. expect. % Comments Net Interest Income 10,538 7, , Higher overdue collection and lower borrowing cost Non Interest Income Operating Income 10,978 7, , Operating Expenses 3,211 3, , Cost to income remain moderate at 28% vs. 35% in FY17 Operating Profit 7,767 4, , Provision Charges , Credit cost remained lower at 0.8% Pre Tax Profit 7,202 4, , Tax Provided 2,565 1, , Profit After Tax In line with estimates Asset under management Gold stock up by 4%; LTV up by 1.9%; gold price down by 1.5% Borrowing NIM bps 16.6 (149bps) Collection in overdue accounts and lower cost drive NIMs GNPA (%) bps bps Rs 5bn GNPA in six months product Page 1 PHILLIPCAPITAL INDIA RESEARCH

2 Result update Rs mn Q3FY18 Q3FY17 Q2FY18 YoY (%) QoQ (%) Interest income 15,227 13,225 16, Interest expenses 4,689 5,970 4, Net Interest Income 10,538 7,255 11, NIM (% of AUM) bps 2500bps Other Income Total Income 10,978 7,439 11, Operating Expenses 3,211 3,000 3, Cost/Income (%) (1031bps) 256bps Pre Provision Profits 7,767 4,439 8, Provisions & contingencies , Profit before tax 7,202 4,400 7, Tax 2,565 1,545 2, Profit after tax 4,637 2,855 4, EPS AUM 282, , , Gross NPAs 15,897 7,863 12, Gross NPAs (%) bps 106bps Net NPAs 13,922 6,844 11, Net NPAs (%) bps 94bps CAR (%) bps 116bps AUM (Rs bn) Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 YoY (%) QoQ (%) % of total Gold Loans under management Other Loans Total Key Data Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 YoY (%) QoQ (%) Gold Stock (tonnes) Avg Gold price Rs/ gm 2,921 2,890 2,878 2,896 2, LTV on Gold Loan (Calculated) Asset quality Rs mn Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 YoY (%) QoQ (%) Gross NPAs 7,863 5,621 6,279 12,593 15, Net NPAs 6,844 4,602 5,260 11,021 13, Gross NPAs (%) Net NPAs (%) Net NPAs/Net worth (%) Provision cover (%) Page 2 PHILLIPCAPITAL INDIA RESEARCH

3 Financials Profit and loss (Rs mn) Balance sheet (Rs mn) (Year Ending Mar 31) FY17 FY18E FY19E FY20E (Year Ending Mar 31) FY17 FY18E FY19E FY20E Net interest income 34,385 41,959 41,123 44,633 Equity 3,995 3,995 3,995 3,995 Other income Reserves 61,170 73,926 85,753 98,381 Net Income 34,529 42,175 41,425 45,055 Net worth 65,164 77,921 89, ,376 Operating expenses 12,603 12,841 14,053 15,897 Borrowings 210, , , ,703 Pre provision profit 21,926 29,334 27,372 29,157 Current liabilities & others 31,007 37,131 42,232 48,434 Provisions 2,716 2,633 2,154 2,661 Total liabilities 307, , , ,513 Profit before tax 19,210 26,701 25,218 26,496 Net block 2,182 2,217 2,328 2,535 Tax 7,411 9,238 8,726 9,168 Investments 2,091 2,091 2,091 2,091 Tax rate(%) Loans 274, , , ,272 Adjusted Profit after tax 11,799 17,462 16,493 17,329 Current assets & others 28,615 28,615 28,615 28,615 Total assets 307, , , ,513 Dupont (as % of Assets) Key ratios (Year Ending Mar 31) FY17 FY18E FY19E FY20E (Year Ending Mar 31) FY17 FY18E FY19E FY20E Interest Income NIM (%) Interest Expense NIM (%) On AUM Net Interest Income Cost/ Income (%) Other income total Credit cost (%) Net Income total RoA(%) Operating expenses total RoE (%) Preprovision profit Leverage (x) Provisions CAR (%) Profit before tax and ex items No of shares (mn) Profit before tax Gross NPA (%) Tax total Net NPA (%) Profit after tax Provision coverage (%) Growth (%) Valuation ratios (Year Ending Mar 31) FY17 FY18E FY19E FY20E (Year Ending Mar 31) FY17 FY18E FY19E FY20E Net interest income FDEPS (Rs) Net Income total PER (x) Preprovision profit Book value (Rs) Profit before tax P/BV (Rs) Profit after tax Adjusted book value (Rs) Loan P/ABV (Rs) AUM P/ PPP Dividend yield (%) Estimates Page 3 PHILLIPCAPITAL INDIA RESEARCH

4 Stock Price, Price Target and Rating History N (TP 450) B (TP 450) B (TP 450) B (TP 450) B (TP 450) J 16 F 16 M 16 M 16 J 16 A 16 S 16 N 16 D 16 F 17 M 17 M 17 J 17 J 17 S 17 O 17 Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition BUY >= +15% Target price is equal to or more than 15% of current market price NEUTRAL 15% > to < +15% Target price is less than +15% but more than 15% SELL <= 15% Target price is less than or equal to 15%. Page 4 PHILLIPCAPITAL INDIA RESEARCH

5 Management Vineet Bhatnagar (Managing Director) (91 22) Kinshuk Bharti Tiwari (Head Institutional Equity) (91 22) Jignesh Shah (Head Equity Derivatives) (91 22) Research Automobiles Engineering, Capital Goods Pharma & Specialty Chem Dhawal Doshi (9122) Jonas Bhutta (9122) Surya Patra (9122) Nitesh Sharma, CFA (9122) Vikram Rawat (9122) Mehul Sheth (9122) Agro Chemicals IT Services & Infrastructure Raag Haria (9122) Varun Vijayan (9122) Vibhor Singhal (9122) Strategy Banking, NBFCs Shyamal Dhruve (9122) Naveen Kulkarni, CFA, FRM (9122) Manish Agarwalla (9122) Logistics, Transportation & Midcap Neeraj Chadawar (9122) Pradeep Agrawal (9122) Vikram Suryavanshi (9122) Telecom Paresh Jain (9122) Media Naveen Kulkarni, CFA, FRM (9122) Consumer & Retail Naveen Kulkarni, CFA, FRM (9122) Technicals Naveen Kulkarni, CFA, FRM (9122) Vishal Gutka (9122) Subodh Gupta, CMT (9122) Preeyam Tolia (9122) Metals Production Manager Vishal Gutka (9122) Dhawal Doshi (9122) Ganesh Deorukhkar (9122) Akshay Mokashe (9122) Vipul Agrawal (9122) Editor Cement Mid-Caps Roshan Sony Vaibhav Agarwal (9122) Deepak Agarwal (9122) Sr. Manager Equities Support Economics Rosie Ferns (9122) Anjali Verma (9122) Sales & Distribution Corporate Communications Ashvin Patil (9122) Asia Sales Zarine Damania (9122) Kishor Binwal (9122) Dhawal Shah Bhavin Shah (9122) Sales Trader Ashka Mehta Gulati (9122) Dilesh Doshi (9122) Execution Archan Vyas (9122) Suniil Pandit (9122) Mayur Shah (9122) SINGAPORE: Phillip Securities Pte Ltd 250 North Bridge Road, #06 00 RafflesCityTower, Singapore Tel : (65) Fax: (65) JAPAN: Phillip Securities Japan, Ltd 4 2 Nihonbashi Kabutocho, Chuo ku Tokyo Tel: (81) Fax: (81) THAILAND: Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, VorawatBuilding, 849 Silom Road, Silom, Bangrak, Bangkok Thailand Tel (66) Fax: (66) UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 3050 The Chicago Board of TradeBuilding Chicago, IL USA Tel (1) Fax: (1) Contact Information (Regional Member Companies) MALAYSIA: Phillip Capital Management Sdn Bhd B 3 6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, Kuala Lumpur Tel (60) Fax (60) INDONESIA: PT Phillip Securities Indonesia ANZTower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia Tel (62) Fax: (62) FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance Paris France Tel (33) Fax : (33) AUSTRALIA: PhillipCapital Australia Level 10, 330 Collins Street Melbourne, VIC 3000, Australia Tel: (61) Fax: (61) HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax: (852) CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, OceanTower Unit 2318 Shanghai Tel (86) Fax: (86) UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS Tel (44) Fax: (44) SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) Fax: (94) INDIA PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai Tel: (9122) Fax: (9122) Page 5 PHILLIPCAPITAL INDIA RESEARCH

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