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Muthoot Finance's gold assets under management grew at a tepid pace of 3%, while Manappuram Finance's AUM declined 14% in September quarter
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Finance companies who lend against gold have been under immense pressure this year.
The September quarter reflects some of this, although things are not as bad as in the preceding quarter, owing to a firming up of gold prices.
Muthoot Finance Ltd’s gold assets under management (AUM) grew at a tepid pace of 3%, while Manappuram Finance Ltd’s AUM declined 14% in the three months ended September, even though disbursements gained some traction.
Gold holdings of Muthoot Finance grew 4% to 132 tonnes, while for Manappuram Finance it was down 12% to 51 tonnes since it auctioned the gold pledged by defaulters. There was some benefit seen from firm gold prices, up 20% during the quarter as gross non-performing assets (NPAs) growth slowed for Manappuram Finance—bad loans declined 17%.
Net interest income for Muthoot Finance fell 7% and for Manappuram Finance it plunged 23%, compared with last year. Provisions and write-offs increased over one-third for Muthoot Finance. In the case of Manappuram Finance, while the write-offs more than doubled, provisions declined sharply because of a higher focus on recoveries and a jump in gold prices. Manappuram Finance’s management said it has auctioned loans with book value of ₹ 211 crore and under-recoveries were at around ₹ 42 crore, according to a note by Edelweiss Securities.
Lower AUM weighed on the overall profitability as net profit declined 21% for Muthoot Finance and fell 35% for Manappuram Finance.
Of course, investors have punished these stocks owing to their dismal performance this year. On a year-till-date basis, shares of Manappuram Finance have declined 54% while those of Muthoot Finance have lost 48.4%. While both the non-banking financial companies (NBFCs) are trading at cheap valuations of 0.5 times and 0.9 times estimated 2013-14 price-to-book multiple, any significant upside looks unlikely, given the central bank’s tight guidelines, which has hurt their business. Apart from a loan-to-value ratio of 60%, the central bank issued further strictures for these firms last month.
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