Gold loan NBFCs make hay while sun shines

livemint.com:

Muthoot Finance Ltd and Manappuram Finance Ltd are currently in the spotlight with prices of the yellow metal scaling new highs. Domestic gold prices are hovering above the psychological ₹65,000 per 10-gram mark, indicating a robust demand for gold loans. This augurs well for both Muthoot and Manappuram as it could lead to growth in their assets under management (AUM).

Further, higher gold prices may help contain the margin compression to a certain extent amid rising borrowing costs. These non-banking financial companies (NBFCs) are also poised to benefit from the recent debacle at peer IIFL Finance. The Reserve Bank of India has directed IIFL Finance to stop disbursing and sanctioning gold loans.

As the two incumbents fill the gap created by IIFL’s absence, they could see market share gains in the interim. “IIFL Finance had a 13% market share in FY23, up 420 basis points over four years, versus 38% for Muthoot and 12% for Manappuram," said a report by Kotak Institutional Equities. The gap was reduced further in the nine-month ended December (9MFY24).

This is going by the solid 35% growth in IIFL’s gold loan book in 9MFY24 compared to 22% and 12% growth in the loan books of Muthoot and Manappuram, respectively, it added. Against this backdrop, Kotak finds tailwinds to Muthoot’s gold loan growth. The Muthoot management has maintained FY24 gold loan growth guidance at 15%.

Given its relatively higher exposure to gold loans, Muthoot could see a greater benefit from elevated gold prices than close competitor Manappuram. To be sure, shares of both these companies have moved neck and neck over the last one year, gaining about 48%. Manappuram’s diversification strategy which aims at taking gold loans in the overall portfolio