The sudden sharp fall in gold prices affected stock prices of Kerala-based Manappuram General Finance & Leasing and Muthoot Finance. While the former crashed 9.9 per cent to Rs 46.4, the latter tumbled 6.95 per cent to Rs 156.60 as these companies provide loans against gold.
Spot gold prices in Mumbai closed 5 per cent lower today at Rs 27,740 for 10 gm, while standard gold opened at Rs 27,610, down Rs 850.
In international market, spot gold's slumped on Wednesday to $1,564 an ounce and hovered around $1594 (at 7.00 p.m. IST). Gold futures ended at their lowest level in five months as concerns about liquidity and Europe's economy flared after the euro broke below a psychological threshold.
Mr George Alexander Muthoot, Managing Director, Muthoot Finance, said the recent fall in gold prices in the international market will not affect the company's NPA. The average loan to value was only 62 per cent in September this year. “We have been keeping sufficient margins anticipating a correction in the price,” he said.
According to Muthoot Finance, gold loan outstanding stood at Rs 20,766 crore and total value of gold pledged at market price (Rs 2,625/gm) at the end of September 2011 at Rs 34,000 crore.
“My personal view is that the prices would go up again after a month or so. This is a temporary fall because fundamentals of the economies of the western world have still not improved,” Mr George Alexander Muthoot added.
Muthoot Finance reported a net profit of Rs 216 crore for the quarter September 30 on a revenue of Rs 1,098.41 crore.
Manappuram Finance's net profit grew 125 per cent year-on-year at Rs 135.3 crore and revenue by 155 per cent at Rs 620 crore.
A November 4 report from Bank of America-Merrill Lynch said: “We like Manappuram owing to a strong earnings trajectory (earnings growth of +55 per cent through FY10-13E), driven by MGFL capitalising on $11-billion market opportunity growing at over 30-35 per cent year-on-year. MGFL is better positioned versus peers, driven by rapidly rising distribution and proven expertise. Default risk is low for MGFL and asset quality is manageable (net NPLs at less than 0.2 per cent), driven by strong risk management systems and sentimental value of collateral.”
Misguided hooliganism
Regarding the problems being faced by the company's branches in Tamil Nadu in connection with the Mullaperiyar Dam controversy, he said the company has got over 750 branches in the State and operations of about 10 branches may have been slightly affected, especially in Theni district. The operations have been affected only in certain areas.
He termed the situation as a misguided hooliganism and the company is seriously watching the situation. Following a request by the police, the company is partly closing down the operations of some branches for a day and a half in case of a law and order problem. , he added.