Muthoot Finance stock slips 5%. What is taking the sheen off its performance?
₹66,040 crore in the June quarter (Q1FY24). Loan growth in this mainstay business segment got a boost from rising gold prices. For FY24, the management reiterated a 15% growth in gold AUM aided by a pick-up in demand and easing competitive pressure by banks.
In line with this optimistic view, the company added 59 new branches in Q1, with that the total branch count now standing at 5,897, out of which 4,742 are gold loan branches. But, in this case, all that glitters is not gold. Despite robust growth in gold loan AUM, the stock fell nearly 5% on the NSE in Monday’s intra-day trade.
The growth in the key gold loans business has come at the cost of lower margin. “Muthoot reported a healthy sequential growth in gold loans but this growth was accompanied by a corresponding trade-off between spreads and margins. Striking an appropriate balance between loan growth and margin will still remain an important deliverable in FY24," said a Motilal Oswal Financial Services report.
In Q1, the reported net interest margin (NIM) declined by around 70 basis points sequentially to 11.6% on lower yields on advances. Plus, the cost of borrowing funds rose. Going ahead, the management guided for maintaining the margins and spreads by passing the rise in interest cost to the borrowers.
The company aims to maintain spread and NIM at 10%/11% respectively going ahead. Further, asset quality deteriorated with stage-2 and stage-3 assets rising sequentially, thus translating into higher provisions. In an earnings call, the management explained that the weakness in asset quality was largely on account of an extended time of a few more months given to customers.
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