Stock Review: Muthoot Fincorp

 

THE increasing awareness and huge penetration seen in gold loans business has helped large gold loan players like Muthoot Fincorp double their revenues during the financial year 20102011.

Muthoot Fincorp, which gets 98 per cent of its revenues from the gold loans business, is not too worried about the stiff competition in the sector, which has seen many big players bet aggressively on the business.

The aggressive competition in the business has also resulted in banks and NBFCs fighting out to give higher ticket loans over gold. Earlier NBFCs like Muthoot would give only 65-70 per cent of the value of gold pledged as loan to the borrower. However with competition breathing down their neck, most players are forced to lend up to 80-90 per cent of the value of the gold pledged by the borrower.

Banks offer interest rates of 12-14 per cent on gold loans, which is much lower compared to the 2024 per cent charged by NBFCs.

This forces NBFCs to keep their operating costs