Muthoot Fincorp Limited
Rating Action
&Private placement Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale Crisil Ratings has reaffirmed its ratings on the debt instruments and bank loan facilities of Muthoot Fincorp Limited (MFL; flagship company of the Muthoot Pappachan group [MPG]) at ‘Crisil AA-/Crisil A+/Stable/Crisil A1+’.
The ratings continue to reflect the healthy performance and strong market position of MFL in the core gold loan portfolio, as indicated by steady growth in its assets under management (AUM), and sound asset quality. The ratings are further supported by promoters’ extensive experience in the loan-against-gold jewellery business, established market position in the gold Financing business, and diversified product profile of MPG. These strengths are partially offset by geographical concentration in portfolio and potential challenges associated with the non-gold loan segments.
Gold loan portfolio accounted for around 54% of the group’s overall AUM as on September 30, 2024, and stood at Rs 24,444 crore (including co-lending of Rs 3,900 crore). Out of the remaining 46% non-gold portfolio, microfinance business accounted for majority i.e. 28% and Rs 12,519 crore AUM as on September 30, 2024, while the AUM of vehicle and housing finance stood at 5% each and Rs 2,381 crore and Rs 2,311 crore, respectively.
As far as the gold loan portfolio is concerned, Crisil Ratings has taken note of the recent news concerning disbursal of loans in cash by non-banking financial companies (NBFCs) engaged in the gold loan business. During fiscal 2025, the company has smoothly transitioned to digital channels due to its existing infrastructure and technology, which already supported online disbursements for larger loan amounts. Crisil Ratings, however, will continue to monitor the impact of the guidelines on the growth in the gold loan portfolio of MPG group.
Capital position has been supported by internal accruals and the recent capital infusion in the microfinance subsidiary during December 2023 through an IPO with fresh equity of Rs 760 crore and Rs 200 crore through offer for sale. Consequently, consolidated networth increased to Rs 6,570 crore in fiscal 2024 from Rs 4,904 crore (adjusted for real estate and cash) in fiscal 2023. Moreover, consolidated gearing stood at ~5 times as on March 31, 2024, from 5.7 times (adjusted for real estate and cash) as on March 31, 2023. During H1 of fiscal 2024, the standalone PAT of MFL stood at Rs 379 crore translating into annualised ROMA of 2.4% as against Rs 563 crore and 2.5% respectively for fiscal 2024 (one of its highest since last 4-5 years). |
Analytical Approach For arriving at the ratings, Crisil Ratings has combined the business and financial risk profiles of MFL (engaged in financing against gold jewellery, and financing micro and small and medium enterprises [MSMEs]), Muthoot Microfin Ltd (MML; microfinance), Muthoot Capital Services Ltd (MCSL; two-wheeler finance and MSME loans), and Muthoot Housing Finance Company Ltd (MHFCL; housing finance). This is because all these companies, collectively referred to as MPG, have significant financial, managerial and operational linkages. MML and MHFCL are subsidiaries of MFL while the promoters hold a 62.5% stake in MCSL.
The rating on the perpetual debt instruments reflects the subordinated nature of instruments and factors in the extent of comfortable buffer consistently maintained by MFL over the regulatory capital adequacy requirements and adequate financial flexibility. The rating on the perpetual bonds additionally takes into account restriction to MFL from servicing these instruments if it breaches the minimum regulatory capital requirement, or if the regulator denies permission to the company to make payments of interest and principal, if it reports losses.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Established market position in gold financing, supported by the extensive experience of the promoters MFL has an established market position in gold financing. The promoters have spent over seven decades in lending against gold jewellery. Over the years, the group has established a strong reputation and brand in South India and has an appropriate assessment and underwriting methodology. The company’s gold loan AUM stood at Rs 24,444 crore as of September 2024 in comparison to Rs 20,484 crore in fiscal 2024. The total gold holding stood at around 48.2 tonnes as on March 31, 2024 (48.09 tonnes as on March 31, 2023). As far as disbursements are concerned, the company maintained average monthly disbursement rate of close to Rs 4,051 crore during H1 of fiscal 2025 (as against Rs 3931 crore during fiscal 2024). The AUM per branch accordingly has improved to around Rs 6.2 crore as on March 31, 2024, against ~Rs 4.4 crore in fiscal 2020.
Diversified product profile of the MPG The MPG has diversified its product profile over the past few years. Currently, the group operates in five major segments: loan against gold jewellery, two-wheeler finance, microfinance, housing finance and small business loans. Overall managed AUM of the group was around Rs 45,462 crore as on September 30, 2024 (Rs 39,170 crore as on March 31, 2024). The proportion of gold loans remained high at 54% in September 2024. The microfinance portfolio is the second largest with around 28% of the group’s overall portfolio as on September 30, 2024. Crisil Ratings believes that gold loans will continue to hold the largest share in the consolidated AUM over the medium term.
Improvement in capitalisation with the recent infusion Networth at standalone level stood at Rs 4,923 crore (including CCCPS) as on September 30, 2024, against Rs 4,423 crore as on March 31, 2024. Capitalisation is further supported by low asset-side risks (security of gold jewellery, which is liquid and in the lender’s possession). On a consolidated level, networth stood at Rs 6,570 crore (including CCCPS) as on March 31, 2024, against Rs 4,904 crore (adjusted for real estate and cash) as on March 31, 2023, which was bolstered by recent capital infusion in the microfinance subsidiary during December 2023 through an IPO with fresh equity of Rs 760 crore and Rs 200 crore through offer for sale. The company’s tier-1 ratio and overall CRAR stood at 15.12% and 18.9% respectively on September 30, 2024, as compared to 12.1% and 16.9% respectively as on March 31, 2021. Moreover, gearing at the standalone level stood at 4.6 times as on September 2024 (4.1 times adjusted for liquidity and PDI) as compared to 4.5 times in fiscal 2024 and at consolidated level improved to ~5 times in fiscal 2024 as compared to 5.8 (adjusted for real estate and cash) times in fiscal 2023. The management is expected to maintain gearing at the current level over the medium term. Any material increase in gearing beyond current thresholds will be a key rating sensitivity factor.
Healthy asset quality in the gold loan segment to support overall group asset quality Gross non-performing assets (GNPAs) for MFL stood at 1.4% as of September 2024 against 1.6% in March 2024. Furthermore, there is negligible impact of the Reserve Bank of India (RBI) clarification released in November 2021 on the NPAs as gold loans are demand loans where the interest and principal are due for payment at the end of the tenure. Nevertheless, during the last 6-8 quarters, the company steadily commenced lending to the MSME retail outlets and has also been offering LAP loans to salaried customers (against collateral of property). The non-gold portfolio stood at Rs 3,808 crore as of September 30, 2024, and the company is planning to steadily expand the same. MFL is doing regular auctions of gold loans, which would help in reducing GNPA below 2% in gold loans. In the gold loan segment, the company has maintained healthy asset quality over the years, backed by strong collection efficiency. Asset quality, as measured by credit costs, has also been under control (within 0.5%) during this period for gold loans. In fiscal 2024, credit costs stood at 0.1%. The company has been doing regular auctions since June 2021. Furthermore, the company is focusing on short-tenure (less than 12 months) gold loan product which should help MFL to de-risk the portfolio from any sharp movements in gold prices in the near term.
Improving earnings profile Profitability, both at consolidated and standalone level, has seen substantial improvement during last 1-2 years. On a standalone basis, RoMA improved to 2.4% during H1 of fiscal 2025 (one of its highest since last 4-5 years) as against 2.1% during fiscal 2024 (1.9% during fiscal 2023). If we adjust for cash and cash equivalents, profitability improves to 2.6% in H1 of fiscal 2025. The company has maintained its focus on regular interest collections in its gold loan portfolio in order avoid for any higher delinquencies and reduce loss, if any, post auctions. On a consolidated level, the earnings profile benefitted from improvement in its key businesses, i.e. microfinance and vehicle finance. RoMA, at group level, improved to 2.8% in fiscal 2024 from 2.0% in fiscal 2023. The profitability in the microfinance portfolio, in particular, has improved substantially owing to steady growth and limited asset quality challenges faced during the last 4-6 quarters. RoMA within microfinance stood at 3.6% during fiscal 2024 as against 1.8% during fiscal 2023. As far as vehicle finance segment is concerned (which is housed in MCSL), it had been carrying a huge provision buffer of Rs 393 crore (18.7% of the on-book portfolio as of March 2023). Of this Rs 139 crore was written back during the first half of fiscal 2024. As a result, the company’s profitability improved owing to this one-time impact; RoMA for MCSL stood at 5.1% during fiscal 2024 as against 3.5% during fiscal 2023. Nevertheless, given decent portion of group is towards unsecured segment, its ability to maintain on credit costs and thereby keep improving on its earnings profile will remain key monitorable.
Weakness: Geographical concentration in portfolio High geographical concentration persists, with South India accounted for around 55% of the gold loan portfolio as on September 30, 2024, though it improved from 70% as on March 31, 2019. This was achieved by increase in per branch business from branches other than those in southern India; opening of new branches in North, East and South; and closure or merger of non-viable branches in South India. While concentration has been declining, it is higher than that of peers. Presently, since demand for gold loans has been high in the region, the proportion of AUM from the South may not decline further in subsequent fiscals.
Potential challenges associated with the non-gold loan segments The non-gold segments accounted for 48% of the overall portfolio as on March 31, 2024. While MPG has managed to grow these businesses and increase the segmental share over the last 2-3 years, potential challenges linked to seasoning of the loan book and asset quality remain. In fiscal 2024, microfinance and housing finance portfolios registered a double-digit growth of 33% and 36%, respectively, while vehicle loan portfolio degrew by 4%. However, asset quality in both the microfinance and vehicle finance segments has improved. The 90+ dpd (days past due) for MML stood at 4.3% as of March 2024 (5.1% as on March 31, 2023). The GNPA in case of MCSL stood at 10.2% (20.55% as on March 31, 2023) against 25.9% as on March 31, 2022. The 90+ dpd for MHFCL stood at 0.78% as on March 31, 2024 (0.8% as on March 31, 2023). Nevertheless, Crisil Ratings will continue to closely monitor the delinquency trend and collection efficiencies in the non-gold loan segments over the medium term. Additionally, sufficiency of capital buffers to withstand asset-side shocks remains a key rating sensitivity factor. |
Liquidity: Strong As per the asset liability management statement of September 30, 2024, MFL, on a standalone basis, had cumulative positive gaps in the up to 1 year bucket. As on January 29, 2025, it had liquidity of Rs 2,456 crore (Rs 1,033 crore of cash and equivalent and Rs 1,421 crore of cash credit [CC]/working capital demand loan [WCDL]). Against this, it had total debt repayment (including operating expenses) of Rs 1,825 crore over the next three months (February to March 2025). This excludes CC/WCDL limits, which are typically rolled over. Crisil Ratings notes that MFL has been able to roll over the CC/WCDL limits in the past and also during the previous three months and expects to be able to roll over the balance limits falling due in the coming months.
Average monthly collection stood at around Rs 3,790 crore during the H1 of fiscal 2025. In terms of additional funding, in H1 of fiscal 2025, MFL raised Rs 6,257 crore in the form of terms loans, CC/WCDL, ECB and CP. While a larger proportion of borrowing has been sourced as funding lines from banks and financial institutions such as term loans (38.8%) and CC/WCDL (35.5%), resource profile remained diversified across avenues such as NCDs (15.2%), subordinated debt (6.9%) and commercial paper (3.6%) as on September 30, 2024. |
Outlook: Stable Crisil Ratings believes MFL’s business risk profile of MFL will continue to be supported by its established market position in the gold loan segment. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Set up in 1997, MFL is a non-deposit-taking, systemically important NBFC engaged in lending against gold jewellery. The company has diversified into Secured and Unsecured MSME segment. It is the flagship company of the MPG, which has diverse businesses such as hospitality, real estate and power generation. The company also distributes mutual funds and general and life insurance products and operates in the money transfer segment and foreign exchanges through its branches. MFL (on a standalone basis) had an AUM of Rs 28,252 crore, MML had an AUM of Rs 12,519 crore, MCSL had Rs 2,381 crore, and Muthoot Housing had Rs 2,311 crore as on September 30, 2024. The microfinance business accounted for majority i.e. 28%, while the AUM of vehicle and housing finance stood at 5% each. |
Key Financial Indicators - Standalone
#including off balance sheet assets and co-lending; annualised for September 2024 *net gearing is adjusted for off balance sheet assets and real estate exposure and cash &adjusted for PDI **4.1 times and 2.6% respectively adjusting for liquidity
Key financials for MPG
*net gearing is adjusted for off balance sheet assets and real estate exposure and cash $including off balance sheet assets |
Any other information: On January 29, 2025, MFL informed Crisil Ratings regarding interest payment towards NCD bearing ISIN INE549K08186. As per the details shared by the company, total interest payable for this NCD issue was Rs 1,02,66,686 to a total of 510 beneficiaries. The company initiated the payment on January 28, 2025 (one day prior to the actual due date) and the payment was successfully made to 501 beneficiaries on the due date and could not be remitted to 9 beneficiaries.
Of the 9 beneficiaries, there was incorrect or dormant investor account for 8 beneficiaries (aggregating to Rs 2,69,780) and absence of correct information for 1 beneficiary (amounting to Rs 94 and the company issued cheque for the same). Subsequently, the company maintained the required amount in an escrow account on the due date. Furthermore, the company also had adequate liquidity (in the form of cash balance and liquid investments) of Rs 1,034 crore as on January 29, 2025.
Hence, the rating on this ISIN remains unchanged as the reason for the non-payment of interest to the nine investors was beyond the company’s control and the required amount was maintained by the company in a separate escrow account with a scheduled commercial bank on the due date (i.e. January 29, 2025). Also, this failure in remittance does not reflect financial inability or the unwillingness of MFL to service its debt on time. |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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Criteria Details
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