Established market position in gold financing, supported by the extensive experience of the promoters

MFL has an established market position in gold financing. The promoters have spent over seven decades in lending against gold jewellery. Over the years, the group has established a strong reputation and brand in South India and has an appropriate assessment and underwriting methodology. Gold loan business registered a steady 22% compound annual growth rate over fiscals 2018-2020, and 21% in fiscal 2021 despite increase in competition from banks and having a regulatory loan-to-value disadvantage in fiscal 2023. However, in fiscal 2022, higher volatility in gold prices between January and April 2021, followed by localised lockdown imposed by states to curb the impact of the second wave, affected branch operations and disbursements during the first-half of the current fiscal.

This, coupled with higher auctions in the third quarter of fiscal 2022, led to gold loan AUM of Rs 18,125 crore as of March 2022 for MFL against Rs 18,701 crore as of March 2021. In fiscal 2023, the companyu2019s gold loan AUM stood at Rs 17,942 crore, which improved to Rs 18,612 crore in the first-half of fiscal 2024. The total gold holding stood at around 48.9 tonnes as on September 30, 2023 (51 tonnes as on March 31, 2020) owing to decline in gold loan portfolio. During fiscal 2023, the company disbursed Rs 40,065 crore against Rs 35,154 crore in fiscal 2022. In the first quarter of fiscal 2024, it disbursed Rs 12,470 crore. The AUM per branch stood at Rs 5.8 crore as on September 30, 2023, against ~Rs 3.6 crore in fiscal 2019.

Diversified product profile of the MPG

The MPG has diversified its product profile over the past few years. Currently, the group operates in five major segments: loan against gold jewellery, two-wheeler finance, microfinance, housing finance and small business loans. Overall managed AUM of the group was around Rs 33,332 crore as on June 30, 2023 (Rs 31,587 crore as on March 31, 2023). The proportion of gold loans remained high at 56% in September 2023. The microfinance portfolio is the second-largest with around 32% of the groupu2019s overall portfolio as on September 30, 2023. CRISIL Ratings believes that the gold loans will continue to hold the largest share in the consolidated AUM over the medium term.

Improvement in capitalization with the recent infusion

Networth at standalone level stood at Rs 4,252 crore (including CCCPS) as on September 30, 2023, against Rs 4,050 crore as on March 31, 2023. Capitalisation is further supported by low asset-side risks (security of gold jewellery, which is liquid and in the lenderu2019s possession). On a consolidated level, networth stood at Rs 4,904 crore (including CCCPS) as on March 31, 2023, against Rs 4,271 crore as on March 31, 2022, which was bolstered by $50 million in MML by a private equity investor, Greater Pacific Capital, in fiscal 2022; and $10 million in September 2022. Moreover, net gearing (adjusted for cash and real estate assets) at the standalone level stood at 4.2 times in fiscal 2023 as compared to 4.8 times in fiscal 2022 and at consolidated level improved to 5.8 times in fiscal 2023 as compared to 6.0 times in fiscal 2022. As of June 2023, net gearing at standalone level stood at 4.3 times in Q1 2024.