00:00 Hello and welcome to BQ Prime. You're joining us on this special broadcast where we're discussing
00:04 Muthu Finance's first quarter results. We have with us Mr. George Alexander Muthu from the company.
00:10 Mr. Muthu, welcome to this conversation. I first want to take up this point about the net profit
00:16 growth of what 27 percent. You've got a total income rise of what 25 percent. The stock doesn't
00:22 seem to be reacting the way these results are supposed to result.
00:29 I think there is some disturbance in the, I can't hear you properly. I think, can you hear me
00:34 properly? I can hear you very clearly sir. No, but from your side the voice is not clear. It's
00:41 breaking in between. The question I had sir was with regard to your net profit growth. You've seen
00:46 about a 27 percent rise year on year on your profit but the results are not showing as well
00:54 on the stock exchange side. When you look at the stock price that is seeing a lot of volatility.
00:59 Just wanted to get your views on that. I think I have been always saying our job here or my job
01:06 here or the company's job here is to do well, grow the book, grow the profit etc. But the market has
01:13 its own reasons not only for Muthu Finance but for other companies also. There are so many other
01:18 factors which affect the market price and the market sentiment. Probably some of it may be there.
01:24 From our side, Muthu has done well. Our profit has grown. Our AUM has grown. Our guidance of 10
01:31 to 15 percent for the full year still holds good. So from our side, the performance side, we have
01:38 done actually better than what we had also anticipated. So I think in that respect we have
01:44 done well but market, I don't know. Sometimes it goes comes up, goes down etc. They have their own
01:51 reasons. They have their own sentiments, sometimes external factors, sometimes people's perception.
01:57 I think that is what is triggering the market whether it's going up or down.
02:02 Okay sir. I want to bring your notice to the net interest margin side. That's where I
02:10 think a lot of people are or at least analysts are pointing out that that is a bit of a
02:15 disappointment during this quarter. You had about a 11.6 percent net interest margin and you're
02:22 guided for 11 percent for the rest of the financial year. I wanted to know what the trajectory is
02:28 looking like. Is this primarily the cost of borrowing that has gone up or are there asset
02:35 quality issues that also you're counting in? I understood the question. See, our net interest
02:44 margin has been upward of 11 percent. I think because of our good capital base, we have a good
02:50 capital base also. So the net interest margin could be high although our spread is in the range
02:56 of 9 percent plus. So 9 percent plus is the net interest margin is a spread and the NIM is in
03:05 the range of 11 percent. That is because we have a very good capital base, capital adequacy is high.
03:11 So what we are doing guidance is again on the same lines only, the 9 percent plus of spread,
03:18 which is really not bad and also the NIM of 11 percent. Now, your question about the cost of
03:25 funds going up. Yes, in the last one year, it has gone up by about 0.6 or 60 basis points,
03:32 but some of it we have been able to pass on to the customers also because the loans are all
03:38 small ticket loans, not very large, under 50 crore customer. They are 5,000, 10,000, 2 lakh,
03:45 10 lakh customers. So we can pass on some of it because if the interest rate borrowing cost for
03:50 us is going up, it generally means that the borrowing cost for these customers for any other
03:55 loan they take, whether it is a term loan or a personal loan or a housing loan or even a vehicle
04:01 loan, that would have gone up. So having been happy or comfortable paying a higher interest for
04:08 the home loans and the vehicle loans and personal loans, they would not mind paying maybe the same
04:14 incremental cost to go down. So we have not seen a big strain in passing on the incremental cost
04:20 of borrowing to the actually our lender. And on the asset quality front, sir,
04:27 you have seen your stage 3 assets spike a little bit, it is about 4.26%. I know as a gold loan
04:34 lender, you have enough and more collateral to cover any kind of loan that goes back. But
04:40 in terms of the overall asset quality position of your customer base, is there any outlook?
04:46 See, what is happening is gold price also is going up because there are customers. So
04:53 when we give 100 loans, 97 to 98% of the customers take back the loan in the period of one year. So
05:00 although the period is one year, we give it for one year, 60% take it back after three, four months.
05:06 And finally, up to 12 months, only about 2 to 3% goes up. So sometimes people have some small
05:12 funding issues or maybe cash flow issues, they approach the branch and tell them our option is
05:17 to auction the gold when it reaches the 15, the one year plus the 90 days. So at that time, it
05:24 becomes so our options either to auction the gold if the customer is not taking it. So customers
05:30 come to the branch and request that sir, give me two, three months time more, I am expecting some
05:36 more money to come from somewhere and branches actually form us and since we are definitely in
05:43 the money, we don't lose any money or principal is safe or interest is safe. We don't mind giving
05:49 some more time to the customer. See, unless the customer is happy, he will not come back to us
05:55 because you should remember that ours is a treadmill. The customers average life of the
06:01 loan is only four months. So we need the customers to come back to us after maybe a brief gap of
06:08 after having closed the loan, they will come back after two, three months again to take the loan.
06:12 If we auction the gold, he cannot come back again. Second, if he auctioned the gold, he gets
06:18 dissatisfied, he may not choose us. So that is one of the reasons why Mutuot always has a better
06:24 customer base than our customers and AOM than all the other NBFCs which actually have branches
06:31 right around us. So customers see us as a much more accommodative NBFC and we don't
06:40 lose any money. In the last decades, we have not lost any rupee because an account was NPA.
06:46 And these NPA accounts actually get churned. Today, one account is in NPA. After three months,
06:53 a new account comes and this fellow either takes it back or we auction. So in order to reduce the
06:58 auction, that is why we carry some of this in our books because we find you on these NPA accounts,
07:05 we don't accrue any interest on us. So interest is not accrued in the books, but actually when
07:10 he takes it back, he pays the full interest. So in that sense also, the company's balance sheet
07:16 is strong. Okay. With regard to some of the investment announcements that you've made
07:22 during this quarter, you said you're going to put some more money in Mutuot money, you're going to
07:28 add some more, buy a little more equity on some microfinance. I just wanted to get a sense as to
07:35 what the plan is as far as these subsidies are concerned. As far as the subsidiary Mutuot money
07:41 is concerned, it is doing microfinance and probably some gold also. So that company needs
07:46 to create capital because it has got about 500 crores of AUM now and the share capital is only
07:54 100 crores. So probably they have plans to grow it to about 1,500 crores in the next year by the
08:01 end of the year so that they need capital. And since it's 100% subsidiary, PMIT is well thought,
08:07 we should give it as a capital to this company so that their balance sheet becomes stronger. So it
08:12 is again the growth capital which we are giving to Mutuot money. As far as the microfinance is
08:17 concerned, there are some external PEs also there, one of them probably wants to exit also.
08:24 In other words, also the microfinance is having good plans. They have planned to reach about 9000
08:32 crores of AUM by the end of the year. So they generally definitely need share capital and they
08:38 are planning to go for an IPO. The board has decided that it is in the discussion stage.
08:43 Okay. Overall on your consolidated loan book, is it still only going to be driven by a gold loan
08:52 business? What about your housing finance and other lending businesses? How are they performing?
08:57 As far as the gold loan business is concerned, we had earlier in the last two quarters,
09:03 we have given a guidance of 10 to 15% growth in the AUM of gold loan. So we stand by it and I'm
09:09 sure seeing at the last two quarters, the Q4 of last year and Q1 of this year, we should be able
09:16 to definitely achieve the 10 to 15% or probably more. I don't want to change any outlook now,
09:23 but definitely the guidance which we gave, we are definitely able to grow. So today,
09:28 the non-gold loan portfolio was about 11%, now it is about 12%. So going forward in the next
09:35 three, four years, our non-gold loan portfolio like this housing finance, the microfinance,
09:42 maybe the vehicle finance, etc. should come up to about 20% in the three, four months. We have
09:49 also started a small book on the salary personal loan, which is about almost two years now, which
09:55 is about 600 crores of AU in the salary personal loan and some SME loans also we have started,
10:01 small, small portfolios, but then going forward in the next few years, we should see it growing.
10:08 Okay, so last, I wanted to ask you in terms of the monetary policy announcement that came in
10:14 last week. Now, again, the RBI has very clearly said that they are going to raise rates at this
10:19 point in time, at least. But going ahead, do you believe that as an NBFC that grows money for the
10:27 market, you see the cost of funds rising any further? Do you think this is the peak? What
10:32 is your view on this? See, the regulator is also definitely comfortable with what we are doing.
10:39 Recently also, we got permission to open another 100 plus branches. So that's what we open 100,
10:45 100 to 200 branches is what we open. So once you open these earlier, there was a permission for
10:51 150 and once that has been completed, we got another permission from 114 branches. So as we,
10:57 as soon as we open that, we will go, so branch opening, etc. has not been an issue. And we will
11:02 continue to open branches for mutual finance also, but probably on a calibrated scale, that's all
11:08 what we require. So as far as the regulator is concerned, we are also now termed as the upper
11:17 layer NBFCs. The upper layer NBFCs are more, what should I say, they are more controlled,
11:24 monitored a little more intensely by the regulator. We are quite happy with that also.
11:30 So I think going forward, there's room for good NBFCs to grow in this environment also.
11:36 My question was regarding your cost of funds. What is your view? Do you think it's going to
11:42 rise any further? Or is this the peak as far as cost of funds are concerned?
11:45 Yeah, in the last one year, it has gone up by about 50 to 60 basis points. As I said,
11:51 we have been able to pass it on to the customer. I think it is almost bottoming out, probably
11:56 another 10-15 basis points upward is what we expect. So a very minor 10 to 15% upward
12:04 revision in the cost of borrowing is what we expect. And it should taper at that. And probably
12:09 coming down, it may take another three, four quarters for the rates to come down, start
12:14 coming down. So it's almost, I wouldn't say bottoming out, it is almost going to its peak now.
12:22 All right. Thank you so much, Mr. Muthur for joining us on this conversation.
12:26 Pleasure talking to you, sir. Thank you.
12:38 [BLANK_AUDIO]
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