India
NRI
Pick Of the Week – State Bank of India
Every week, we recommend a well-researched fundamental equity investment as our ‘Pick of the Week’. Handpicked after a thorough analysis of the business, industry, and economy, this recommendation has a higher potential of earning good returns over a horizon of 6 - 9 months.
Investment Rationale
Higher Online Gold Lending (OGL) to support AUM: In Q4FY20, AUM registered a healthy growth of 29.8/4.5% YoY/QoQ and stood at Rs. 25,225 cr, driven by strong growth in gold financing (+30.9% YoY) and Micro finance (+43.3% YoY). Gold loan growth stood at 30.9% YoY and 4.5% QoQ and was driven by higher gold prices coupled with an increase in gold holding of 7.2% YoY. Online Gold Lending (OGL) platform is expected to increase to ~70% by FY21 from 48% in FY20. Number of customers opting for OGL has increased by 10-12% in the lockdown period. This will support AUM growth.
Improvement in Opex to AUM: Opex to AUM at the end of FY20 stood at 7.2% vs. 8.3% in FY19 Overall
reduction cost reduction of ~Rs 20-30cr in FY21 is indicated by the management with opex reduction in gold loans
by 1% expected. This should aid profitability.
Gold lending financiers better placed: Gold lending will remain an attractive option for customers looking for
credit as banks will be more risk averse. Only ~5% of MGFL’s customers have opted for moratorium. The
company’s liquidity position remains strong. We expect MGFL to maintain ROAE of ~24% over FY21/FY22.
We Recommend
-
CMP
₹115
-
Target Price
₹126
-
Potential Upside
10%
* Note: Stock Investment horizon approx. 6-9 months. CMP as on 22nd May, 2020.
Please refer the research report disclaimer before making an investment decision.