Gold Stocks To Buy: The latest import duty hike is expected to increase gold loan companies’ assets under management (AUM) of the yellow metal as the new taxation is seen to lift gold prices higher. As gold prices have a high correlation with gold AUM growth, increased gold prices are expected to lead to increasing in gold loan companies’ gold AUM (Assets Under Management is the total market value of investments managed by an asset management company).
The government hiked the basic import duty on gold to 12.5 per cent from 7.5 per cent, the Union government said in a gazetted notification on June 30.
An increase in gold import duty has made gold prices dearer in the Indian market which will be beneficial to gold loan companies. Historically we have seen gold loan companies faring well when gold prices are high. This is because there is a high correlation between gold AUM growth and gold prices. Historically also gold loan companies have seen negligible losses because of the periodic interest collection and timely auction of gold. With the increase in gold prices, AUMs of Non-banking NBFC particularly gold loan companies are expected to increase," explained Bhavik Patel, senior commodity/currency research analyst, TradeBulls Securities.
On the import duty hike, research Analysts, Ansuman Deb and Kunal Shah of ICICI Securities in their note said, this can lead to an increase in prices. They further said that it would come as a positive for gold loan companies as higher gold prices would mean higher ticket sizes on the same quantity of gold assuming the same average loan to value (LTV).
Data from ICICI Securities analysts revealed that gold AUM per branch increased at a CAGR of 12 per cent and 10 per cent from FY14 to FY22 for Muthoot and Manappuram Finance which majorly drove gold AUM CAGR of 13 per cent and 12 per cent for the companies during the same period. However, productivity in terms of gold tonnage per branch has increased at 5 per cent and 3 per cent CAGR for Muthoot and Manappuram from FY14 to FY22 respectively. On the other hand, IIFL’s gold AUM growth of 19 per cent CAGR from FY14 to FY22 mainly was driven by branch expansion of 12 per cent CAGR and gold loan per branch CAGR of 7 per cent.
As of March 31, 2022, Muthoot has the highest gold AUM per branch of Rs 12.5 crore compared to Rs 5.2 crore and Rs 4.9 crore in Manappuram and IIFL.
RBI Approval- “A Positive Surprise"
Further, the RBI approval for allowing Muthoot Finance in expanding its branch capacity has opened a positive gateway for other gold financial services companies to follow suit. Branch expansion coupled with higher gold prices is likely to be beneficial for the companies that offer gold loans.
Gold loan NBFCs with assets greater than or equal to 50% are required o take prior RBI approval before opening more than 1,000 branches.
Currently, Muthoot has the largest branch network of 4,617 gold loan branches, while Manappuram follows with a network of 3,829 branches and IIFL Finance with 3,296 branches as of March 31, 2022.
In Q4FY22, both Muthoot and Manappuram had mentioned that there have been some delays by the RBI in providing approvals for further branch expansion, which the analysts said, “has traditionally been a growth concern for investors."
ICICI Securities have given a buy rating on Muthoot and Manappuram with a target price of Rs 1,509 and Rs 147 respectively.