INTERVIEW: Muthoot Capital CFO hopes strong Jan-Mar will spur growth

Thursday, Jan 24


–Muthoot Capital CFO: Aim 7.0-7.5 bln rupee disbursements Jan-Mar

–See AUM at 29.5 bln rupees by end-March

–See AUM at 37 bln rupee FY20-end vs 35 bln aim

–Running pilot on used car financing in 2 states

–To offer consumer durable financing Apr-Sep

–Saw 30 bps rise in cost of funds Oct-Dec

–Currently 17% of AUM is securitised pool

–Aim 50-55% provision cover ratio vs 43.1% on Dec 31


By T. Bijoy Idicheriah


MUMBAI – Muthoot Capital Services Ltd had to face headwinds such as liquidity crunch, floods in Kerala, and a slowdown in the two-wheeler industry in the December quarter. However, Chief Financial Officer Vinod Panicker expects lending to pick up in the traditionally strong March quarter.


Muthoot Capital's disbursements fell 5% on year to 5.02 bln rupees in Oct-Dec.


"We hope to have a disbursement of about 700-750 crore (7.0-7.5 bln) rupees in the fourth quarter, which is normally the best quarter for the industry. This would lead to assets under management of about 2,950 crore (29.50 bln) rupees or so," he said in an interview to Cogencis.


The non-banking financial company is on course to touch the 37-bln-rupee mark for assets under management by the end of 2019-20 from existing products alone, he added.


Despite lower disbursement, the lender's Oct-Dec net profit grew 48% on year to 233 mln rupees, reflecting the impact of geographical diversification and increased lending rates. Support from banks and an increase in lending rates to customers ensured there was no impact on earnings.


Panicker said new products such as used car financing, loyalty loans, and consumer durables financing will help it diversify further from gold loans.


Edited excerpts from Panicker's interaction with Cogencis: 


Q. December quarter was a tough one for non-banking financial companies. How did this impact Muthoot Capital's earnings and net interest margin/spreads?

A. No doubt, Oct-Dec was a tough quarter for non-banking financial companies business, but for Muthoot Capital the battle was on three fronts–NBFC-related issues (liquidity), aftermath of Kerala floods, and the slowdown in the two-wheeler industry due to higher prices owing to changes in (third party) insurance norms.


The company did not face any challenges on the liquidity front due to support extended by lenders. We also decided to be cautious in terms of lending and ensured it worked within pre-determined conservative targets. Hence, overall disbursement was about 7% lower than Jul-Sep.


The fact that the company has more than 4.50 bln rupees collected by way of equated monthly instalments each quarter through National Automated Clearing House, Muthoot Fincorp branches, and collection agencies ensured that cash inflow far exceeded outflow. There was a 30-basis-point increase in overall cost of funds.


While Kerala floods had an impact, the geographical diversification strategy that the company embarked on three years ago ensured volumes from other regions were significantly higher. Therefore, south versus non-south mix was 63:37 compared with 80:20 in the previous year.


The rise in cost of loans had its impact but we don't expect it to last long and the bounce back can already be seen in January. Interest margins were steady as we increased lending rates for some of the schemes. Also, the funding mix ensured overall cost increase was around 30 bps only and margins were not unduly impacted.


Q. Will there be any impact on your business where lending is short-term and liabilities tend to be more mixed, from the proposed changes in asset-liability management norms by RBI?

A. Our loans are in the 12-36 month tenor and liabilities, along with undrawn limits more or less take care of the ALM (asset-liability management). In ALM statements, the company does not see any short-term mismatch or any form of cumulative mismatches in any bucket. Hence, we don’t expect any impact.


Q. What will be the trajectory for assets under management and loan growth by FY19-end and in FY20? Any plans to add more products?

A. We hope to disburse loans of about 7.0-7.5 bln rupees in Jan-Mar, normally the best quarter for the industry. That would lead to assets under management of about 29.50 bln rupees or so.


When we did a qualified institutional placement in November 2017, we had projected (assets under management of) 35 bln rupees by March 2020. Based on our expectation for this year end we hope to be at approximately 37 bln rupees or so by end of 2019-20 with existing products.


We have started financing used cars in some parts of Kerala and Tamil Nadu. We hope to increase the geographical penetration over the next few quarters and build up volumes. Loyalty loans are already there, though on a small scale, and consumer durable financing is planned to be rolled out in Apr-Sep. All this will ensure growth in the years to come.


Q. How much of your book do you intend to securitise to also change how you raise liabilities?

A. We are reasonably active in securitisation and have securitised loans worth approximately 14 bln rupees in the past two years. The securitised pools are performing well and hence sought by same and new investors. We will continue to do this. At present, 17% of our overall AUMs are securitised. Our policy permits 35%. The actual would be somewhere in between.


Q. How is the company doing on improving its provision coverage ratio to 60%? Will this put pressure on future earnings?

A. Last year, the company had said it would work toward achieving a provision coverage ratio of 50-55% by 2020. We are at 43.1%. Over the past 4-5 quarters, we have made additional provisions without any major impact on earnings. With slippages reined in and other measures taken, we are confident we will meet our provision coverage ratio commitment without any major impact on future earnings.  End


Edited by Deepshikha Bhardwaj


Cogencis Tel +91 (22) 6619-0000

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This copy was first published on the Cogencis WorkStation

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