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The latest import duty hike is expected to increase gold loan companies' assets under management (AUM) of the yellow metal as the new taxation is seen to lift gold prices higher. Further, the RBI approval for allowing Muthoot Finance in expanding its branch capacity has opened a positive gateway for other gold financial services companies to follow suit. Branch expansion coupled with higher gold prices is likely to be beneficial for the companies who offer gold loans.
On the import duty hike, research Analysts, Ansuman Deb and Kunal Shah of ICICI Securities in their note said, this can lead to an increase in prices. As gold prices have a high correlation with gold AUM growth, increased gold prices are expected to lead to an increase in gold loan companies’ gold AUM as higher gold prices would mean higher ticket sizes on the same quantity of gold assuming the same average loan to value (LTV).
Finance Ministry increased gold import duty to 12.5% from 7.5% - resulting in a hike of 5%.
Data from ICICI Securities analysts revealed that gold AUM per branch increased at a CAGR of 12% and 10% from FY14 to FY22 for Muthoot and Manappuram Finance which majorly drove gold AUM CAGR of 13% and 12% for the companies during the same period. However, productivity in terms of gold tonnage per branch has increased at 5% and 3% CAGR for Muthoot and Manappuram from FY14 to FY22 respectively. On the other hand, IIFL's gold AUM growth of 19% CAGR from FY14 to FY22 mainly was driven by branch expansion of 12% CAGR and gold loan per branch CAGR of 7%.
As of March 31, 2022, Muthoot has the highest gold AUM per branch of ₹12.5 crore compared to ₹5.2 crore and ₹4.9 crore in Manappuram and IIFL.
Further, the analysts pointed out that RBI's approval for opening 150 new branches in Muthoot, "is a positive surprise."
Gold loan NBFCs with assets greater than or equal to 50% are required o take prior RBI approval before opening more than 1,000 branches.
Currently, Muthoot has the largest branch network of 4,617 gold loan branches, while Manappuram follows with 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 mentioned that there have been some delays by the RBI in providing approvals for further branch expansion, which the analysts said, "has traditionally been a growth concern for investors."
With the branch expansion approval to Muthoot, the analysts said, "With Muthoot getting the approval, we could also expect Manappuram to get the permission. 150 new branches with full potential and today’s productivity can add ~3%/4% gold AUM growth for Muthoot/Manappuram. This is a notable number considering Muthoot/Manappuram’s average annual growth in gold AUM during the last 5 years has been 16%/13% and 10%/6% in last 10 years, respectively."
ICICI Securities have given a buy rating on Muthoot and Manappuram with a target price of ₹1,509 and ₹147 respectively.
On BSE, Muthoot shares closed at ₹1059.00 apiece down by 0.50%. Manappuram shares finished at ₹89.65 apiece down by 1.38%.
