EXCLUSIVE: Muthoot Finance says this year's growth is likely to exceed guidance

Muthoot Finance set to exceed 15% growth guidance this yearBCCL
  • Muthoot Finance Managing Director George Alexander Muthoot told Business Insider that the company is likely to exceed its annual guidance of 15% growth.
  • The company’s share price has surged by 125% since the coronavirus lockdown happened on March 24.
  • With more people reluctant to leave the house, Muthoot’s new Loan@Home service has seen the average ticket sizes surge to around ₹3.5 lakh — six times the size of gold loans given out in branches.
Banks may be worried about loans going bad, but India’s largest gold loan company Muthoot Finance is sitting comfortable. During the pandemic, as small businesses look for fast and short-term funds, the surging gold prices have only made gold loans more attractive — offering borrowers a bigger bang for their buck.

In fact, business is going so well that Muthoot Finance could be on track to beat its projected guidance for the year. The stock has gained 125% since the coronavirus lockdown happened on March 24.

Muthoot Finance's share price surges by over 125% since the nationwide coronavirus lockdownBSE/BI India

“We’ve given a modest guidance of 15% but I’m sure we’ll be able to do more,” the company’s Managing Director George Muthoot Alexander told Business Insider in an exclusive interview on the #HangoutwithBI Twitter Live.
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There was a dip in collections during the first quarter. “People were just waiting for the branches to open to take back their ornaments, so there was a rush of repayments,” explained Muthoot.

Muthoot Finance's gold loans assets under management (AUM)Company filings/BI India

As Muthoot Finance reopened its doors as the coronavirus lockdown was lifted, business has picked up.
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“We’ve seen tremendous growth in the gold loan portfolio,” he explained. With the focus solely on gold loans, he added that the company might not be looking to grow its non-gold loan portfolio over the next six to 12 months.

The company has launched services like Loan@Home to help issue gold loans without people having to leave their house. The average ticket size of a gold loan under the 100-day old program has been around ₹3.5 lakh — six times the size of an average ticket from physical branches.

Currently, Muthoot Finance has ₹8,000 crore cash in its coffers that cover 20% of their loan book, which Muthoot believes is a better safe than sorry strategy.
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It helps that the cost of incremental borrowing is down by about 100-150 basis points to near 8%, which is at par with borrowers looking for home loans. One hundred basis points form 1%.

What is causing the jump in gold loans?
After the lockdown, businesses are looking to restart. “Our customers are generally small traders, small businesses, shopkeepers, and MSMEs — small MSMEs. These are people who need quick and easy financing,” he said.

Rather than go to banks, these short term loans are ideal for borrowers looking to stock up on goods for Diwali, make payments to suppliers or get their hands on some quick money for short-term needs.
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CompanyGrowth in gold loans
Muthoot Finance32%
Manappuram Finance33.40%
Overall bank credit growth5.50%
Source: CARE Ratings report dated August 17 (Data as of July end, except for Manappuram, which is as of June end.)

That said, big banks are also dipping their toes in the gold loan market. Even though their gold loan portfolio is hardly anything to write home about, their participation lends authority causing the overall market to expand, according to Muthoot.

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