The outperformers 2020

All that glitters is not gold, but Muthoot Finance does come close

The financier has seen galloping growth but managing director, George Alexander Muthoot, says the secret is not in the glitter 

For George Alexander Muthoot, gold loans are a business driven by sentiment. It may sound soft-hearted, even soft-headed to the cynical, but the gold-loan NBFC has been doing exceptionally well. Between FY19 and FY20, the company’s net income grew 28% from Rs.68.8 billion to Rs.97 billion, and its net profit went up 51% from Rs.19.72 billion to Rs.31.69 billion. Amid the lockdown, loan moratoriums and shrinking economy, its stock price rose 120%, from Rs.508 on March 23 to Rs.1,098 on September 9, on the back of 40% rise in gold loan demand.

Alpesh Mehta, deputy head of research at MOFS, says the NBFC’s biggest strength is its robust network of branches — over 4,500 in FY20. This is the highest for any NBFC; even the largest private bank has about 5,300 branches across the country. Yes, it’s capex-heavy, but it’s necessary for a gold-loan business. The NBFC also offers a wide range of loans, which start as small as Rs.1,000 and have no upper limit, and for anywhere between 7 days to 12 months. 

Besides its reach, the company has also worked on its customer service. Loans are processed in hours, where banks could take up to two weeks. Therefore, even when Muthoot Finance charges rates upwards of 11.99%, it gets more business compared to PSU banks who charge 8-9%. As all lending is based on highly liquid collateral, MOFS’ Mehta says, “It’s the safest business to be in... You have to do something really foolish to get this wrong.” 

A second-generation entrepreneur and MD of the country’s largest gold-loan NBFC, Muthoot tells Outlook Business how they have managed to keep growing over the past 80 years, and why gold loans flourish in a good and bad economy.

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