Top Stock Picks For 2017 By Nirmal Bang

Entering the growth phase

– FY16 marked an end to the company’s three-year long consolidation phase.

Key factors in the growth of gold loans were stable gold prices, steady LTV regime, a level-playing field, weak players shifting out and de-focus by banks.

– Demonetisation Impact

– Collections as well as disbursement are impacted on account of shortage of availability of new currency. Collections were 70% of normal in November.

Situation is expected to normalise within next couple of months.

– De-risking gold loan portfolio from volatility in gold prices
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– It has moved to short-term (3-6 months) loan products with a maximum LTV of 75% which has helped the company in bringing down auctions losses significantly.

– Diversification into non-gold products

– It has embarked on a strategy of diversifying into microfinance, home loan, CV financing and LAP. Non-gold portfolio forms 12% of AUM in FY16 against 4% in FY15.

– Robust asset quality

– Despite moving to 90-day recognition for NPAs (a year ahead of regulatory requirement) GNPAs eased significantly backed by its strategy of de-risking gold loans. Also, the company has provided 40bps for standard assets (a year ahead of regulatory requirement).

– Return ratios to strengthen further

– With likely strong growth in AUM, stable margins, contained credit costs and operating as well as financial leverage to kick in, we expect RoA/RoE to improve further by 90bps/840bps to strong levels of 3.8%/21.6%, respectively in FY19E.