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Muthoot, Manappuram shine on bourses on gold’s stellar rally

Gold is currently the most liquid and probably the only asset class which is appreciating.

, ET Bureau|
Nov 05, 2019, 07.56 AM IST
ET Intelligence Group: While lenders and investors are wary of most NBFCs, stocks of the two listed gold financing companies, Muthoot Finance and Manappuram Finance, have gained 16 per cent and 54 per cent, respectively, in the past three months.

Apart from a strong business momentum, the fact that the loans given by these two companies are backed by gold has been a major investment rationale. Gold is currently the most liquid and probably the only asset class which is appreciating. Sharp rise in gold prices, up 24 per cent in the past six months and 10 per cent in the past three months, has given comfort, which could be lacking in other lending models that provide funds against real estate and other assets.

“Among lending segments, gold finance is the most profitable with return on equity of over 20 per cent, with the least credit risk. Though barriers to enter the business are low, there are barriers to scale up, evident from the experience that many of the recent entrants have vacated. Scale of operations is where existing companies such as Muthoot and Manappuram enjoy a competitive advantage,” said Utsav Gogirwar, analyst with Investec.

In FY19, the net interest margins (NIM) of Muthoot and Manappuram were 16.7 per cent and 14.3 per cent, respectively, as compared to most other NBFCs where NIMs were below 10 per cent.

Standalone growth in the assets under management (AUM) was 20 per cent for Muthoot and 23.3 per cent for Manappuram in FY19; AUM growth for most other NBFCs was less than 20 per cent.
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