Muthoot Finance Q2 Results Review- Gold Loan Growth Remain Muted; Margin Recovery Still Elusive: Motilal Oswal

Motilal Oswal Report

Muthoot Finance Ltd.’s Q2 FY23 results were characterised by:

1. muted gold loan growth of 3% YoY to Rs 565 billion (previous year: 547 billion);

2. maturity of much higher interest rate gold loans (disbursed prior to the introduction of teaser rate gold loans), keeping the yield improvement muted;

3. retirement of higher cost liabilities, aiding benign borrowing costs in a rising rate environment, and

4. lower reported operating expenses, translating into an inline pre-provision operating profit.

Standalone profit after tax declined ~13% YoY to ~Rs 8.7 billion (in-line), led by a 13% YoY decline in net interest income. Standalone yields increased marginally ~8 bps QoQ to 17.5%, while the cost of borrowing declined ~8 bps QoQ, leading to a ~15 bps/30 bps sequential improvement in spreads and margins, respectively.

Both the yield improvement and the margin recovery were below expectations.

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