Lockdown impacts Muthoot Capital Services’ disbursement, collections; stock slips 2%

There has been a significant reduction in both revenue and profitability of the company.

Aug 03, 2020 11:08 IST India Infoline News Service

Muthoot Capital Services Limited informed the exchanges Saturday that the company had started witnessing the reduction of disbursement of loans from mid-March and completely stopped it with effect from March 24, 2020 as the nation went into complete lockdown.

The collections were also temporarily stopped during the said period. Hence, there has been a significant reduction in both revenue and profitability of the company. With the factors being fluid and changes in the scenario inevitable, there would be significant impact on the profitability over a period of time.

However, the company's liquidity position is good, and the company has been servicing its debts and other financial obligations during lockdown and has continued to service its monthly obligations without any hassle. The company has been fortunate to be able to get financial assistance from Bankers and also through securitization of a portfolio.

Muthoot Capital Services Ltd is currently trading at Rs351.50, down by Rs7.15 or 1.99% from its previous closing of Rs358.65 on the BSE.

On the negative side, the company does expect slippages post the end of the moratorium period and enhanced cost of collection. Noting that the impact of the same on the financials for the year could be significant, the company has made contingency provision to the extent of Rs50cr (270 bps of the Own Book AUM net of the securitized portfolio) over the last two quarters i.e. Q4FY20 and Q1FY21, also with the dealerships from where the business is generated for the company seeing a start-stop-start scenario, the impact on the disbursement could be severe thereby impacting the disbursements and thereby the revenues negatively.

However, on the positive side, the company is forecasting that the demand of the two-wheelers would substantially increase in the Indian market, for the months to come, due to the importance of proper social distancing and the restriction on the public transport system. Hence, that would substantially increase the business of the company also.

All the branches of the company including the customer contact points were under complete lockdown during the first two phases of lockdown. The administrative work of the company continued through work from home and the sales and collection teams were engaged in the customer connect program.

Being an NBFC, which concentrates on the two-wheeler financing, the company has been severely affected as dealer points, from where the customers are sourced, could not operate during the lockdown period.

The two-wheeler industry has also faced a massive cancellation of bookings during the lockdown but is expected to respond positively by taking into account the restrictions on the public transport system and necessity of social distancing post lockdown period.

Effective from April 20, 2020, the head office and some of the Branch Offices have resumed working in permissible Zone, duly complying with the safety norms prescribed by the Government of India and respective State Governments.

Subsequently, considering the ease of restrictions made by the Ministry of Home Affairs by time to time, the company has also increased working hours and allowed more employees to be present in the office with adequate safety measures and precautions.

“The number of employees coming to work steadily increased and as of now, the Company is operating efficiently with 90% of staff capacity at the head office in Ernakulam. While there are intermittent issues of any particular area being declared a containment zone and employees residing in that area became unable to come and therefore working from home, the situation has been seen to be improving with every passing day.

In some of the areas where the Government authorities have not provided any relaxations in the lockdown measures and where the contingency is still persisting, the company has not resumed its business operations,” company said.

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