Amit Kumar of Unifi Capital presented his in-depth investment thesis on Muthoot Finance (India: MUTHOOTFIN) at Asian Investing Summit 2019.

Thesis summary:

Muthoot is the largest gold finance company of India with gross loan assets of USD 5.2 billion and valued at a market cap of USD 3.5 billion as of March 2019. Having received an NBFC license in 2001, this fast growing business has generated a 16.7% CAGR stock returns since its listing in 2011. During the same period, it has delivered an earnings CAGR of 18.5%. Given India’s affinity towards gold, the country has accumulated 24000 tonnes of gold, with 85% of it lying idle with households. Currently, Muthoot holds 166 tonnes of gold, as security against loans to consumers.

More than 60% of the rural consumers of India have credit needs, but don’t have the credentials required by the bank to give them loan. As a result, the consumers resort to seeking financing from unorganised market money lenders. This results in expensive loans at 30-36% p.a., instead of using the gold lying idle with the family. Muthoot is targeting such consumers to make them understand the potential of the gold they own, and to monetise it as short term loans at comparatively cheaper rates. In this way, it is catering to the credit needs of rural and semi-urban India in a profitable way.

The gold finance business in India has a very long possible runway for growth due to underpenetrated consumer credit business, large idle gold with consumers and significant presence of unorganised moneylenders. Given this backdrop, Muthoot offers a long term investment opportunity.

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About the instructor:

Amit Kumar is Assistant Vice President of Unifi Capital