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The Gold Financing Company in India – Muthoot Finance

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Muthoot Finance

Muthoot Finance is the largest gold financing company in India in terms of loan portfolio. As the business very well suggests, the company provides personal and business loans secured by gold jewellery, or Gold Loans.

The company has a different marketing and lending policy where it lends primarily to individuals who possess gold jewellery but could not access formal credit within a reasonable time. Thus the company gives loan to such individuals, so as to provide them short-term liquidity to meet their requirements.

Business Facts

  • Branch network is the largest among gold loan NBFCs in India
  • The Gold Loan portfolio comprises approximately 5.5 million loan accounts in India
  • The accounts are serviced through more than 3,274 branches across India
  • As of September 30, 2011, Muthoot Finance employed 21,543 persons in its operations
  • Headquartered in the southern Indian state of Kerala
  • Company is operating over a period of 72 years.

Gold Revenue

Company’s revenues from Gold Loan business constituted 95.97%, 96.71%, 98.08%, 98.75% of its total income in the years ended March 31, 2008, 2009, 2010, and 2011 respectively.

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Other Services

Muthoot Finance is a Systemically Important Non-deposit taking NBFC. The Company also provides the following services to its customers apart from the regular gold loan facilities:

  • Money transfer services through its branches as sub-agents of various registered money transfer agencies
  • Collection agency services

Company relies on bank loans, subordinated loan, secured non-convertible debentures for its funds requirement.

Key Financial Information

  • Market Cap (Rs Cr): 7,915.62
  • P/E Ratio: 7.91
  • Book Value (Rs): 78.71
  • Dividend (%): 40.00%
  • Industry P/E: 16.93
  • EPS (TTM): 26.91
  • Dividend Yield (%): 1.88%
  • Face Value (Rs): 10.00

As of march 31, 2011 company had over Rs. 207,666.2 million of gold loans and secured 129.5 tons of gold in its kitty as security for gold loan. The figures have improved significantly over the years from Rs. 21,790.1 million of loan and 30.1 tons of gold which was recorded in year 2008.

The Company’s gross non-performing assets or the NPAs were at 0.29% as of March 31 2011, which has improved from 0.42% recorded in March 31, 2008.

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Mar-12 Mar-11 Mar-10 Mar-09
Key Ratios
Debt-Equity Ratio 7.35 8.97 8.85 8.57
Long Term Debt-Equity Ratio 2.09 3.06 5.55 5.86
Current Ratio 1.54 1.61 2.5 2.88
Turnover Ratios
Fixed Assets 14.98 11.13 6.87 4.6
ROCE (%) 20.6 18.7 17.56 16.44

Financial Analysis

  • The Company has a very high Debt to Equity ratio which is well above the Industry average of 2.3
  • Historically the company has improved on its D/E ratio, as well as its long term D/E ratio
  • The Company has strong turnover on fixed assets and has high return on capital employed as well, which has improved over the year
  • The Company’s Adjusted Net profit has improved to a great extent to Rs. 892.02 Crore in March 2012, as compared to Rs. 494.19 Crore in March 2011
  • Also the book value of the company’s stock has shown a great improvement to 78.71 from 41.67 recorded in March 2011.

The Indian Outlook

It is needless to say that India’s GDP growth has improved to certain extent and the state of economy is better as compared to other developed economies of the world. Further Indian government announced a slew of measures to give a boost to the ailing economy for coming few quarters. As a result suddenly there are positive sentiments in the economy, which is expected to trickle down to corporate, and consumers reviving the industrial output and growth in service industry. As and when it happens this shall boost asset financing companies whose principal business is financing of physical assets supporting productive/economic activity. Thus the industry is expected to perform better in the near future and Muthoot Finance being one of the most sought after company in the sector is one of the big bets.

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Niraj Satnalika

Niraj is an MBA in International Business (Finance). Prior to this he completed B.Tech in Electronics and Instrumentation. He is currently working with Confederation of Indian Industry (CII), Kolkata in capacity of Consultant. Satnalika is actively involved with an NGO and works towards promoting education among the underprivileged.

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