Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Muthoot Capital Services Ltd (BOM:511766, Financial) achieved a record disbursement of INR 643 crore in Q2 FY25, surpassing their guidance of INR 600 crore.
- The company successfully reduced its Gross Non-Performing Assets (GNPA) to 4.80% in H1 FY25, ahead of the target to bring it below 6% by March 2025.
- Muthoot Capital Services Ltd (BOM:511766) expanded its customer base by acquiring 75,854 new customers in Q2, bringing the total to 446,998.
- The company reported a significant increase in Earnings Per Share (EPS) to INR 9.71 in Q2 FY25 from INR 6.57 in Q1 FY25.
- The company has diversified its product offerings, with notable growth in commercial vehicles and used car loans, contributing to overall business expansion.
Negative Points
- Despite the positive financial performance, the company faces potential risks from external economic factors, such as stress in lower-income households, which could impact asset quality.
- The company's borrowing costs have increased, with the average MCLR rate rising from 8.51% to 9.21%, potentially affecting future profitability.
- There is a concern about the sustainability of the current ROA and ROE levels, given the competitive pressures and economic uncertainties.
- The company has a high debt-to-equity ratio of 3.37 times, which may limit financial flexibility and increase financial risk.
- Muthoot Capital Services Ltd (BOM:511766) faces challenges in maintaining its market share amidst increasing competition and potential regulatory changes affecting the lending environment.
Q & A Highlights
Q: What are the primary strategies driving customer acquisition and retention, and what are the main contributors to the improvement in ROE and ROA?
A: Mathews Markose, CEO, explained that customer acquisition is driven by three channels: dealer, Muthoot Fincorp branches, and digital. The company uses efficiency and market share strategies, cross-selling, and digital partnerships to enhance retention. Ramandeep Gill, CFO, noted that the improvement in ROE and ROA is due to increased yields and operational efficiencies, with expectations of sustaining these levels through strategic growth and cost management.
Q: How does Muthoot Capital plan to maintain strong asset quality amid economic stress in lower-income segments?
A: Mathews Markose, CEO, stated that while external economic stress could have some impact, Muthoot Capital's secured lending model, with an average LTV of 80%, minimizes risk. The company employs rigorous checks and balances, including efficient EMI collections and a robust repossession and resale process, to maintain asset quality.
Q: What are the expectations for disbursement volumes in the second half of the fiscal year?
A: Ramandeep Gill, CFO, indicated that the company expects disbursement volumes to be significantly higher in the second half, with projections of INR 1,500 crore to INR 1,800 crore. This expectation is based on strong performance in October and anticipated seasonal demand.
Q: When can we expect the Net Interest Income (NII) to grow significantly, and what factors will drive this growth?
A: Ramandeep Gill, CFO, anticipates NII growth to become more pronounced by Q4, driven by lower borrowing costs and improved yields from the company's own book. The company is also working on reducing its cost of funds, which should positively impact NII.
Q: How does Muthoot Capital plan to achieve its AUM target, and what are the expectations for ROA and ROE in the coming years?
A: Ramandeep Gill, CFO, stated that the company aims to reach an AUM of INR 5,000 crore by next year, driven by growth in new product lines like commercial vehicles and used cars. The company expects to maintain an ROA of 3.5% to 4% and an ROE of around 15% as it scales its operations and improves efficiencies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
