Muthoot Finance shares plunge 8% on disappointing Q1 results

Shares of Muthoot Finance Ltd plunged more than 8 per cent on Monday after the non-banking finance company’s (NBFC’s) results for the quarter ended June 2023 (Q1FY24) missed Street estimates.

Muthoot Finance disappointed especially in terms of non-performing assets (NPAs) and net interest margins (NIMs), though loan growth was decent during the quarter.

For Q1FY24, the company’s standalone net interest income (NII) jumped 23 percent to Rs 1,894 crore compared with Rs 1,540 crore a year ago. However, it was below the consensus estimate of Rs 1,960 crore. 

Muthoot Finance’s profit rose 21.6 per cent to Rs 975.1 crore during the quarter under review as against Rs 802 crore in the year-ago period, slightly below the estimate of Rs 1,000 crore. 

Other income jumped 5.1 times to Rs 27.6 crore in Q1FY24 compared with Rs 5.4 crore in Q1 FY23.

NIMs for the quarter came in lower at 11.58 per cent compared with 12.26 per cent in the March 2023 quarter. The consensus estimate for the metric was 12 per cent.

Surge in bad loans

Muthoot Finance struggled on the bad loans front, with the gross NPA ratio jumping to 4.26 per cent in Q1 FY24 from 3.79 per cent in Q4 FY23. It was also higher than the estimate of 3.7 per cent.

Net NPA ratio stood at 3.82 per cent during the June quarter compared with 3.4 per cent in the previous quarter. The consensus estimate for the same was 3.3 per cent for Q1 FY24.

Consequently, provisions against bad loans increased 3.4 percent to Rs 373 crore during the June quarter compared with Rs 360.7 crore in the year-ago period. Sequentially, the increase was sharper at 6.1 percent from Rs 351.6 crore in the March 2023 quarter. 

Decent loan growth

Muthoot Finance assets under management (AUM) surged 19 percent year-on-year during the June quarter.

The company reported its highest ever quarterly gold loan disbursement at Rs 53,612 crore in Q1FY24. The growth in the gold loan portfolio was the highest ever in any Q1 at Rs 4,164 crore. 

The management said that it expected improved demand conditions for gold loans, small and personal and business finance loans in the current financial year. It is also optimistic of growing the company’s gold loan book by 10-15 percent in FY24.  

Opening of new branches in June quarter and Belstar acquisition

Muthoot Finance said that 59 new branches were opened by the group in Q1 FY24. Moreover, the NBFC has received permission from the Reserve Bank of India (RBI) in July 2023 to open 114 new branches. 

The company also got approval from the board to acquire another 2.05 percent stake in Belstar Microfinance Ltd for a total consideration of Rs 43 crore. After the transaction, the company’s stake in Belstar would increase to 59.02 per cent from 56.97 per cent earlier.

Muthoot Finance would also invest Rs 400 crore in its subsidiary Muthoot Money.  

Muthoot Finance shares dropped as much as 8.3 per cent on Monday to hit an intra-day low of Rs 1,236.95 apiece on BSE. At 12:06 pm, the stock was trading down 4.7 per cent at Rs 1,286.45 per share.