BUY CMP 200.90 Target Price 230.00 MUTHOOT CAPITAL SERVICES LTD. Result Update (PARENT BASIS): Q3 FY15 MARCH 25 th, 2015 ISIN: INE296G01013 Index Details Stock Data Sector FINANCE (NBFC) BSE Code 511766 Face Value 10.00 52wk. High / Low (Rs.) 275.70/91.05 Volume (2wk. Avg. Q.) 11000 Market Cap (Rs. in mn.) 2505.22 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 1582.30 1903.43 2131.84 EBITDA 948.20 1129.79 1257.27 Net Profit 222.10 223.88 240.31 EPS 17.81 17.95 19.27 P/E 11.28 11.19 10.42 Shareholding Pattern (%) 1 Year Comparative Graph MUTHOOT CAPITAL SERVICES LTD S&P BSE SENSEX SYNOPSIS Muthoot Capital Services Limited, offers fund and non fund based financial services to retail, corporate and institutional customers through the wide network of branches of Muthoot Fincorp Ltd. The company s net sales registered 17.24% y-o-y growth in 3 rd quarter of FY15 and stood at Rs. 471.90 million compared to Rs. 402.50 million over the corresponding quarter last year. In 3 rd quarter of FY15, Net profit Jumps to 3.69% y- o-y of Rs. 53.40 million against Rs. 51.50 million over prior period of Last year. Profit before tax (PBT) stood at Rs. 81.20 million, an increase of 4.38% in Q3 FY15 as compared to Rs. 78.00 million in Q3 FY14. In Q3 FY15, EBITDA is at Rs. 274.10 million, an increase of 16% y-o-y when compared to Rs. 236.30 million in Q3 FY14. For nine months ended of FY15, the company registered a growth of 23.43% in Net sales to Rs. 1386.70 million from Rs. 1123.50 million for nine months ended of FY14. The outlook for the Company is linked to the demand for automobiles especially two wheelers, purchased on credit, as its main focus is on two wheeler finance. Net Sales and PAT of the company are expected to grow at a CAGR of 26% and 4% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Muthoot Capital Services Ltd 200.90 2505.22 17.81 11.28 2.11 45.00 Sundaram Finance Ltd 1545.75 171766.60 41.73 37.04 7.14 100.00 M&M Fin. Services Ltd 261.90 148959.50 14.23 18.40 2.92 190.00 Capri Global Capital Ltd 165.00 5784.00 26.34 6.26 0.61 15.00
QUARTERLY HIGHLIGHTS (PARENT BASIS) Results updates- Q3 FY15, Muthoot Capital Services Limited, is a part of Muthoot Pappachan Group, has reported its financial results for the quarter ended 31 st December, 2014. Rs. In million Dec-14 Dec-13 % Change Net Sales 471.90 402.50 17.24 PAT 53.40 51.50 3.69 EPS 4.28 4.13 3.69 EBITDA 274.10 236.30 16.00 The company has achieved a turnover of Rs. 471.90 million for the 3 rd quarter of the financial year 2015 as against Rs. 402.50 million in the corresponding quarter of the previous year. The company net profit Jumps to Rs. 53.40 million against Rs. 51.50 million over prior period of Last year. For Q3 FY15, EBITDA is at Rs. 274.10 million against Rs. 236.30 million in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 4.28 for the 3 rd quarter as against an EPS of Rs. 4.13 in the corresponding quarter of the previous year. Break up of Expenditure: During the quarter, Total expenditure rose by 21% mainly on account of Employee benefits Expenses by 9%, Administrative & Other expenditure 15% and Provisions by 220% are the main attribute for the growth of expenditure, when compared to corresponding quarter of previous year. Total Expenditure in Q3 FY15 stood at Rs. 205.20 million as compared to Rs. 170.00 million in Q3 FY14. Break up of Expenditure (Values in million) Q3 FY15 Q3 FY14 Employee Benefit Expenses 100.20 92.10 Depreciation & Amortization Expense Administrative & Other Expenses 6.40 2.00 80.70 70.30 Provisions 17.90 5.60
COMPANY PROFILE Muthoot Capital Services Ltd (MCSL) has established in 1994, the Company offers fund and non fund based financial services to retail, corporate and institutional customers through the wide network of branches of Muthoot Fincorp Ltd. Its portfolio includes commercial and consumer finance products like vehicle loans, gold loans, loans against property, bonds, deposits, investment products and advisory services among others. Apart from these, the company also disburses loans against property, shares, gold ETF s, SME loans, mortgage loans, leasing & hire purchase loans and bill discounting. MCSL promoted by the Muthoot Pappachan Group is a Non Banking Finance Company (NBFC) registered with the Reserve Bank of India and listed on the Bombay Stock Exchange. In the year 2013-14, the company plans to Disburse Rs. 7540.00 millions for financing automobiles and also plans to enter in to tractor finance business and also to expand the business of used car finance on all India basis. The company has framed various schemes like chequeless scheme, 100% funding scheme, 1% interest scheme etc. to cater to the choice of the customers. The exemplary services rendered by company have helped it to be a financer of choice among the customers. The company recognises greater growth in the year to come. The company is planning to tap the huge potential available by adding new products and expanding its operations in the northern part of the country too.
FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31, 2013-2016E 2013A 2014A 2015E 2016E I. EQUITY AND LIABILITIES: A) Shareholders Funds: a) Share Capital 124.73 124.73 124.73 124.73 b) Reserves and Surplus 904.34 1060.73 1284.68 1524.99 Sub-Total Net worth 1029.07 1185.46 1409.41 1649.72 B) Non-Current Liabilities: a) Long-term borrowings 97.54 703.73 837.44 963.05 b) Other Long -Term Liabilities 15.25 20.32 26.90 32.82 Sub-Total Long term liabilities 112.79 724.05 864.34 995.88 Current Liabilities: C) a) Short-term borrowings 3319.84 4391.92 5068.28 5676.47 b) Other Current Liabilities 219.72 740.46 1118.09 1487.07 c) Short Term Provisions 79.23 106.97 83.33 67.83 Sub-Total Current Liabilities 3618.79 5239.35 6269.70 7231.36 TOTAL EQUITY AND LIABILITIES (A + B + C) 4760.65 7148.86 8543.45 9876.96 II. ASSETS: D) Non-Current Assets: a) Fixed Assets 19.76 28.35 37.14 46.42 b) Long term receivables from financing activities 2062.99 2660.38 3019.53 3381.88 c) Deferred tax assets 9.98 13.24 18.32 24.92 d) Non Current Investments 0.02 68.51 140.45 213.48 e) Long Term Loans and Advances 8.79 8.04 8.92 9.78 Sub-Total Non Current Assets 2101.54 2778.52 3224.36 3676.48 E) Current Assets: a) Current Investments 2.03 2.21 2.74 3.26 b) Cash and Bank Balances 9.23 82.39 91.22 104.90 c) Receivables from financing activities 2569.28 4245.76 5116.14 5927.05 d) Short Term Loans and Advances 6.49 15.66 21.92 27.41 e) Other Current Assets 72.08 24.32 87.07 137.87 Sub-Total Current Assets 2659.11 4370.34 5319.09 6200.48 TOTAL ASSETS (D + E) 4760.65 7148.86 8543.45 9876.96
Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs. mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 1066.40 1582.30 1903.43 2131.84 Other Income 5.80 5.30 7.80 10.14 Total Income 1072.20 1587.60 1911.23 2141.98 Expenditure -381.00-639.40-781.44-884.71 Operating Profit 691.20 948.20 1129.79 1257.27 Interest -363.20-604.40-777.77-874.99 Gross profit 328.00 343.80 352.02 382.28 Depreciation -5.30-7.90-16.79-19.81 Profit Before Tax 322.70 335.90 335.23 362.46 Tax -105.10-113.80-111.35-122.15 Net Profit 217.60 222.10 223.88 240.31 Equity capital 124.70 124.70 124.70 124.70 Reserves 904.30 1060.80 1284.68 1524.99 Face value 10.00 10.00 10.00 10.00 EPS 17.45 17.81 17.95 19.27 Quarterly Profit & Loss Statement for the period of 30 June, 2014 to 31 March, 2015E Value(Rs. mn) 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15E Description 3m 3m 3m 3m Net sales 449.30 465.50 471.90 516.73 Other income 2.70 2.70 1.00 1.40 Total Income 452.00 468.20 472.90 518.13 Expenditure -176.50-191.70-198.80-214.44 Operating profit 275.50 276.50 274.10 303.69 Interest -192.10-192.90-186.50-206.27 Gross profit 83.40 83.60 87.60 97.42 Depreciation -1.80-2.00-6.40-6.59 Profit Before Tax 81.60 81.60 81.20 90.83 Tax -27.50-27.70-27.80-28.35 Net Profit 54.10 53.90 53.40 62.48 Equity capital 124.70 124.70 124.70 124.70 Face value 10.00 10.00 10.00 10.00 EPS 4.34 4.32 4.28 5.01
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 17.45 17.81 17.95 19.27 EBITDA Margin (%) 64.82% 59.93% 59.36% 58.98% PBT Margin (%) 30.26% 21.23% 17.61% 17.00% PAT Margin (%) 20.41% 14.04% 11.76% 11.27% P/E Ratio (x) 11.51 11.28 11.19 10.42 ROE (%) 21.15% 18.73% 15.88% 14.57% ROCE (%) 15.66% 15.22% 15.67% 15.41% Debt Equity Ratio 3.32 4.30 4.19 4.02 EV/EBITDA (x) 8.55 7.93 7.36 7.19 Book Value (Rs.) 82.52 95.07 113.02 132.29 P/BV 2.43 2.11 1.78 1.52 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 200.90, the stock P/E ratio is at 11.19 x FY15E and 10.42 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.17.95 and Rs.19.27 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 26% and 4% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 7.36 x for FY15E and 7.19 x for FY16E. Price to Book Value of the stock is expected to be at 1.78 x and 1.52 x respectively for FY15E and FY16E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.230.00 for Medium to Long term investment. INDUSTRY OVERVIEW India has a diversified financial sector, which is undergoing rapid expansion. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The financial sector in India is predominantly a banking sector with commercial banks accounting for more than 60 per cent of the total assets held by the financial system. India's services sector has always served the country s economy well, accounting for about 57 per cent of the gross domestic product (GDP). In this regard, the financial services sector has been an important contributor. The Government of India has introduced reforms to liberalise, regulate and enhance this industry. At present, India is undoubtedly one of the world's most vibrant capital markets. Challenges remain, but the future of the sector looks good. The advent of technology has also aided the growth of the industry. About 75 per cent of the insurance policies sold by 2020 would, in one way or another, be influenced by digital channels during the prepurchase, purchase or renewal stages, as per a report by Boston Consulting Group (BCG) and Google India. Market Size The size of banking assets in India reached US$ 1.8 trillion in FY13 and is expected to touch US$ 28.5 trillion by FY25. Information technology (IT) services, the largest spending segment of India's insurance industry at Rs 40000.00 mn(us$ 649.31 million) in 2014, is projected to continue strong growth at 16 per cent. The total market size of the insurance sector in India was US$ 66.4 billion in FY13 and is expected to breach the US$ 350 400 billion mark by 2020.
Investment corpus in India's pension sector could cross US$ 1 trillion by 2025, following the passage of the Pension Fund Regulatory and Development Authority (PFRDA) Act 2013, according to a joint report by CII EY on Pensions Business in India. India s foreign exchange (Forex) reserves touched US$ 320.56 billion on July 25, 2014, which was just US$ 23 million less than the all-time high of US$ 320.79 billion achieved on September 2, 2011. Investments Corporate law firms in India are benefiting from an increase in the value of mergers and acquisitions (M&As) and share acquisitions during the course of the year. The enterprise value of deals on which law firms have advised has shot up to US$ 35.7 billion this year till December, a 22 per cent increase over the US$ 29.3 billion in deals seen in the whole of 2013. Financial services provider Reliance Capital Ltd, a part of Anil Ambani s Reliance Group, has formed a longterm strategic alliance with Japan s Sumitomo Mitsui Trust Bank Ltd, offering the Japanese lender a small equity stake in the company. As part of the agreement, Sumitomo Mitsui Trust Bank will pick up an initial 2.77 per cent stake in Reliance Capital for Rs 3710.00 mn (US$ 60.22 million) through a preferential allotment of shares. GIC, Singapore's sovereign wealth fund, is buying about 70 per cent stake in BSE-listed Nirlon for Rs 13926.00 mn (US$ 226.07 million). Nirlon owns an information technology park in the western suburbs of Mumbai. GIC said it had signed agreements to buy 39.2 per cent in Nirlon from its promoters, including the Sagar family, for Rs 7843.00 mn (US$ 127.32 million). It will make an open offer for 28.4 per cent stake from public shareholders at the same price. Canada pension plan investment board, which manages assets worth CAD 234.4 billion (US$ 193.92 billion), has through a subsidiary invested Rs 10000.00 mn (US$ 162.34 million) in L&T Infrastructure Development Projects Ltd, a unit of Larsen and Toubro Ltd, India s largest engineering and construction company. The investment is made by way of subscribing compulsory convertible preference shares, L&T said in a statement. In June, L&T and Canada Pension Plan had signed a definitive investment agreement. Nearly three years after the BSE launched a separate platform for small and medium enterprises (SMEs), the market capitalisation of the segment crossed Rs 10000.00 mn (US$ 1.62 billion) recently. The market capitalization of the 82 listed SMEs was Rs 101189.00 mn (US$ 1.64 billion). The Government of India signed an agreement with Asian Development Bank (ADB) for a US$ 75 million loan and a US$ 1.8 million grant that will help improve water resource management in three (3) towns of Karnataka in the Upper Tungabhadra sub-basin. This loan from the ADB s Ordinary Capital Resources has a 25-year term including a grace period of five years.
Government Initiatives Several measures have been outlined in the Union Budget 2014-15 that aim at reviving and accelerating investment which, inter alia, include fiscal consolidation with emphasis on expenditure reforms and continuation of fiscal reforms with rationalization of tax structure; fillip to industry and infrastructure, fiscal incentives and concrete measures for transport, power, and other urban and rural infrastructure; measures for promotion of Foreign Direct Investment (FDI) in selected sectors, including defence manufacturing and insurance; and, steps to augment low cost long-term foreign borrowings by Indian companies. Fiscal reforms have been bolstered further by the recent deregulation of diesel prices. The launch of Make in India global initiative is intended to invite both domestic and foreign investors to invest in India. The aim of the programme is to project India as an investment destination and develop, promote and market India as a leading manufacturing destination and as a hub for design and information. The programme further aims to radically improve the Ease of Doing Business, open FDI regime, improve the quality of infrastructure and make India a globally competitive manufacturing destination. The Reserve Bank of India (RBI) has eased norms for mortgage guarantee companies (MGC) enabling these firms to use contingency reserves to cover for the losses suffered by the mortgage guarantee holders, without having to take approval of the apex bank. However, such a measure can only be initiated if there is no single option left to recoup the losses. Financial inclusion is among the topmost priorities of the Indian government. Exclusion of a large number of people from access to financial services affects the growth of the country. Prime Minister launched the Pradhan Mantri Jan DhanYojana in August 2014. He said that that the objective to cover 75,000,000 households with at least one account under the Yojana will be achieved by January 26, 2015. Retirement fund manager EPFO will launch its project to provide portable universal PF account numbers (UAN) to its subscribers on October 16, 2014. Also, the government will launch unified web portal LIN (Labour Identification Number) to simplify business regulations and bring in transparency and accountability in labour inspections by agencies and bodies under the control of the labour ministry. The RBI has simplified the rules for credit to exporters. Now, exporters can get long-term advance credit from banks for up to 10 years to service their contracts. The requirement is that they have a satisfactory record of three years in order to get payments from the banks, which can adjust the payments against future exports.
Road Ahead India is today one of the most vibrant global economies, on the back of robust banking and insurance sectors. The country is projected to become the fifth largest banking sector globally by 2020, as per a joint report by KPMG- CII. The report also expects bank credit to grow at a compound annual growth rate (CAGR) of 17 per cent in the medium term leading to better credit penetration. Life Insurance Council, the industry body of life insurers in the country also projects a CAGR of 12 15 per cent over the next few years for the financial services segment. Disclaimer: This document is prepared by our research analysts and it does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients investment decision based on this document.
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