The average gold price in the September 2019 quarter, so far, is now up 11.5 per cent from the June quarter and 20 per cent higher than the September 2018 quarter. While Manappuram has about a 66 per cent share of gold loans in total AUM as of June 2019, it is over 98 per cent in case of Muthoot. This indicates the potential upsides in the balance sheet size of gold financiers.
For instance, analysts at Kotak Institutional Equities forecast 18 per cent growth in Muthoot’s AUM during the current financial year due to the rally in gold prices
and expansion efforts. The expected AUM growth is also better than 16 per cent growth clocked in the June quarter.
However, in the case of Manappuram, non-gold business drove overall loan book growth in Q1, making analysts sceptical. “While we appreciate the fact that Manappuram has a strong balance sheet and is unscathed by the liquidity crisis, we remain watchful of its non-gold portfolio, especially due to a tough macro environment,” analysts at Antique Stock Broking said in a note post Q1 results.
This is because microfinance, which is typically unsecured and vehicle funding, which is currently under massive stress, drove Manappuram’s non-gold portfolio. These two segments have 27 per cent share in Manappuram’s overall AUM as of June 2019. Besides, loan book, higher gold prices
improves the valuation of pledged gold.
However, given the shorter asset tenure of up to one year, pricing power, and expected lower cost of bank financing the gold financiers are a preferred bet in the non-banking finance space.
Muthoot is analysts’ top bet in gold finance pack.