The latest import duty hike is expected to increase the assets under management (AUM) of the yellow metal of gold loan companies as the new taxation is seeing a rise in gold prices. Moreover, the RBI approval to allow Muthoot Finance to expand its branch capacity has opened a positive gateway for other gold financial services companies to follow suit. Branch expansion with higher gold prices is likely to be beneficial for companies that offer gold loans.
Anshuman Deb and Kunal Shah, Research Analysts, ICICI Securities said in their note on the import duty hike, this could lead to a rise in prices. as gold prices Gold has a high correlation with AUM growth, it is expected to increase with rise in gold prices gold loan Higher gold prices as companies’ gold AUM would mean higher ticket sizes on the same amount of gold, assuming the same average loan value (LTV).
The Finance Ministry increased the import duty on gold from 7.5% to 12.5% - resulting in an increase of 5%.
Data from analysts at ICICI Securities showed that the AUM of gold per branch grew at a CAGR of 12% and 10% from FY14 to FY22 for Muthoot and Manappuram Finance, compared to 13% for companies during the same period. and significantly increased the Gold AUM CAGR of 12%. However, productivity in terms of gold tonnage per branch for Muthoot and Manappuram grew at 5% and 3% CAGR respectively from FY14 to FY22. On the other hand, IIFL’s Gold AUM grew at 19% CAGR from FY14 to FY22 mainly driven by branch expansion of 12% CAGR and Gold Loan per branch CAGR of 7%.
As of March 31, 2022, Muthoot has . Has the highest Gold AUM per branch of 12.5 crore as compared to 5.2 crore and 4.9 crore in Manappuram and IIFL.
Moreover, analysts pointed out that RBI’s approval for opening 150 new branches in Muthoot, “is a positive surprise.”
NBFCs with gold loan assets of more than or equal to 50% will have to take prior approval of RBI before opening more than 1,000 branches.
At present, Muthoot has the largest branch network of 4,617 Gold Loan branches, while Manappuram has a network of 3,829 branches and IIFL Finance with 3,296 branches as of March 31, 2022.
In Q4FY22, both Muthoot and Manappuram had noted that there has been some delay in granting approval for further branch expansion by the RBI, which, analysts said, “has traditionally been a growth concern for investors.”
With Muthoot getting the nod of branch expansion, analysts said, “With Muthoot getting the nod, we can also expect Manappuram to get the nod. 150 new branches with full capacity and today’s productivity of ~3%/4% gold.” Muthoot/Manappuram. This is a remarkable number considering the average annual growth of Muthoot/Manappuram during the last 5 years, which is 16%/13% and 10%/6% respectively in the last 10 years has been.”
ICICI Securities has given Buy Rating on Muthoot and Manappuram with a target price of 1,509 more 147 respectively.
Muthoot shares closed on BSE 1059.00 a drop of 0.50% each. Shares of Manappuram ended on 89.65 each, down 1.38%.