Reviews

In this edition, we have reviewed Muthoot Finance Ltd. and State Bank of India. We suggest our reader-investors to HOLD Muthoot Finance Ltd. and State Bank of India

We had recommended Muthoot Finance in Volume 37, Issue No. 03 dated January 3-16, 2022 under the ‘Cover Story’ segment. The recommended price for the stock was ₹1,493.35. We had recommended the stock on the basis of healthy dividends pay-out, robust CAGR and solid leadership position. Muthoot Finance is the biggest NBFC of its kind for gold loans in India. The business also provides various types of loans, insurance, money transfer services and the sale of gold coins in addition to financing gold loans. The company has more than 4,400 branches across the nation and has its headquarters in Kochi, Kerala. 

Muthoot Finance has operations outside of India in the US, the UK and the United Arab Emirates. The Muthoot Group is the parent firm of the business. Small enterprises, vendors, farmers, traders, SME business owners and salaried people are all part of the company’s target market. Analysing the quarterly performance for Q2FY23, its net sales fell to ₹2,790.45 crore as compared to ₹3,023.53 crore in Q2FY22. Also, the operating profit was recorded at ₹2,245.65 crore in Q2FY23 as opposed to ₹2,444.56 crore in Q2FY22. The net profit also saw a negative movement for Q2FY23 and recorded a loss of ₹901.62 crore as compared to ₹1,002.87 crore in Q2FY22.

However, the company posted positive numbers on the annual front. The net sales witnessed a rise of 5.56 per cent YoY and stood at ₹12,058.81 crore as compared to ₹11,423.92 crore. The operating profit was recorded at ₹9,736.04 crore with an excellent gain of 4.7 per cent as compared to ₹9,298.77 crore in FY21. Consequently, the net profit delivered excellent results and stood at ₹4,031.22 crore in FY22 as opposed to net loss of ₹3,818.87 crore in FY21. Recurring consumers make up about 80 per cent of its gold financing business. Muthoot Finance will continue to gain from its extensive experience and long-standing presence in the gold lending market.

Strong moats surrounding Muthoot Finance pose comparatively high access barriers for other competitors. Due to rising gold prices and increasing demand, Muthoot Finance stands to benefit in the long run. Since July 2020, gold prices have generally been stable at USD 1,800 per ounce. The rise in gold prices gives the corporation more insurance against its existing collateral. Additionally, it provides credit traction from current clients, enabling top-up loans. On bank loans and NCD ratings, CRISIL has given long-term ratings of AA+ | Stable. Hence, we recommend HOLD

 

We had recommended State Bank of India in Volume 37, Issue No. 03 dated January 4-16, 2021 under the ‘Cover Story’ segment. The recommended price for the stock was ₹461.95. We had recommended the stock on the basis of the bank’s cost to asset ratio, solid ROE and new financial architecture. A Fortune 500 corporation, State Bank of India (SBI) is a statutory entity for public sector banking and financial services in India. It has a long history dating back more than 200 years, making it the bank that Indians have had the most faith in. With a quarter of the market share, SBI is the biggest bank in India and services more than 45 crore customers.

Through its several subsidiaries, including SBI General Insurance, SBI Life Insurance, SBI Mutual Fund, SBI Card, etc., the bank has successfully diversified its commercial operations. It has a widespread presence around the world and employs 229 offices in 31 different foreign nations to function across time zones. On the quarterly front, the net interest earned by the bank in the second quarter of Q2FY23 came in at ₹84,462.87 crore as against ₹73,029.13 crore in the corresponding quarter of the previous fiscal, an increase of 15.66 per cent. The total income in Q2FY23 was ₹114,782.48 crore, an increase of 13.49 per cent from ₹101,143.25 crore in Q2FY22.

The profit after tax went through the roof, up by 64.46 per cent to reach ₹15,017.28 crore in Q2FY23 as against ₹9,131.23 crore in Q2FY22. On a yearly basis, the net interest earned by the bank in FY22 came in at ₹289,972.69 crore, an increase of 4.26 per cent from ₹278,115.48 crore in FY21. The total income earned by the bank in FY22 was ₹406,973.09 crore, an increase of 5.99 per cent from ₹383,970.62 crore earned in the previous fiscal. The profit after tax in FY22 increased by 49.74 per cent to reach ₹36,356.17 crore as against ₹24,279.71 in FY21. The bank’s loan growth is still strong with retail loans and the business sector seeing an improvement. 

The bank’s foreign book is expanding at a robust rate, driven by loans to well-rated Indian corporations from the ECB, syndicated loans and receivables’ financing. Every month, the bank adds 1.1 million saving account customers. The future projections of the bank are encouraging because of its robust increase in advances, solid asset quality and provision coverage ratio (PCR), high capitalisation and financial discipline, all supported by strong governance. Hence, we recommend HOLD.