Muthoot Finance Ltd. is the largest gold financing company based in India. They have been standing firm in the financial services market for over 70 years. The company offers various financial services and have established itself across the country and internationally.
This case study on the SWOT analysis of Muthoot Finance Ltd. discusses the key factors by which the company has been a prominent player in the market. We’ll dive deep into factors such as the financial corporates strengths, weaknesses, opportunities, threats and competitors.
About Muthoot Finance
Founded in 1939 in Kerala, India by M George Muthoot, Muthoot Finance Ltd. is the largest non-banking financial institution for gold loans in India. The company falls under the ‘Muthoot Group’ and is established in over 4400 branches across the country and internationally such as the US, the UK, UAE, Central America and Sri Lanka.
Muthoot provided business personal loans that are secured by gold jewellery. Additionally, they offer a wide range of services such as insurance, financial services, money transfer, foreign exchange, gold loans, housing finances and digital financial services. It is deemed as the most trusted Financial Services Brand in India for the last 5 years consecutively.
The company has shown significant growth during the past years. Let’s analyze the Strength, Weaknesses, Opportunities, and Threats of Muthoot Finance to understand how the company stood out from their competitors and continues to grow.
What is a SWOT Analysis?
A SWOT Analysis matrix is a powerful tool that helps an organisation assess their Strengths, Weaknesses, Opportunities and Threats. Internal factors such as strengths and weaknesses can be controlled, whereas external factors like opportunities and threats cannot.
SWOT Analysis can help an organisation make the most of what they have to ensure their company succeeds. With this in-depth understanding, the company can lessen their chances of failure by recognising where they lack and avoid threats that they would usually be unaware of. This analysis can be helpful during decision making whenever the objectives are defined.
SWOT Analysis forces a company to view their business and/or plan in distinguishing ways via contrasting paths. This technique exhibits the true potential of an idea or plan and henceforth, helps the company reach their goals in a strategic manner with a rock-solid foundation for business growth.
Now that we have understood the importance of the SWOT analysis, let’s dive into how Muthoot Finance used this matrix tool to its advantage.
Strengths of the company
Muthoot Finance has a long list of strengths that made it a big player in the finance market. Some of its strengths include constant growth and wide presence. Strengths are aspects of an organization that contributes effectively or a system that distinguishes them from their competitors. Any aspect of the organization is considered a strength if it brings them a clear advantage.
Let us take a brief look into Muthoot Finance strengths.
- Good Growth in Trailing Twelve Months Earnings per Share: The company has reported 413.9% returns for Nifty 500 in 5.4 years.
- It is increasing profits and revenue for the past 3 quarters.
- Good possibilities to scale business because of geographical diversification.
- The company has a leading position in the Gold loan business with a strong presence under the semi-urban and rural markets.
- It didn’t seem to get much impacted during the pandemic which shows great trust in the company.
- Strong ability to raise capital.
weakness of the company
Being such a strong player in the market it has very few weaknesses. It is highly important for an organisation to recognise their weaknesses. It aids the company to grow and lead the market. Muthoot Finance’s weaknesses are low but not zero, thus let’s look into its main shortcomings.
- Its weaknesses include its large dependency on gold loans. Since the company is largely dependent on the gold business, a fall in gold prices will directly impact the company.
- The company’s shareholding decreased last quarter due to MFs
- The company has a weak financial position i.e. it has a low Piotroski score.
Opportunites of the company
Opportunities are targets to hit for something good to happen. These shouldn’t have to be game-changers: even minute advantages can help a company compete effectively. Changes in government regulations affecting their sector, as well as changes in social patterns, demographic profiles, and lifestyles, can all present fascinating opportunities.
Let’s dive into what opportunities did Muthoot Finance grab.
- Demand for gold will likely rise due to the lockdown implications.
- It is showing a good rise in net profit and has an increase of 10% in the share market in the last three months.
- In recent times, it shows a decrease in Provision.
- The company can venture into new markets since it already has a good image in the market.
Threats of the company
Anything that might have a negative impact on your firm from the outside is considered a threat. Consider the challenges you’ll encounter in bringing your product to market and marketing it. It could be a drop in the quality of the products or services presented. However, whatever it may be, anything that could cause harm to the organization should be recognised.
Muthoot Finance is a big player in the market and others have noticed the same which in turn resulted in more competition from NBFCs and banks, here are some of the other threats for the company.
- Increasing competition from the banks and non-banking financial institutions.
- While the company’s gold business is expected to do well, its subsidiary businesses don’t seem to do well.
- The company’s housing finance segment saw disbursements decline by 40% in the first quarter of this year. Post pandemic effects on housing finance don’t give great signs of near growth.
- It has a high market cap, with low public shareholdings.
Recognising potential aspects that will ensure a company’s growth is essential. In this in-depth SWOT analysis of Muthoot Finance Ltd., we understood how the corporation enhances their services to hold its status. Despite the plunge in gold prices today, the company recognised it’s potential threat and worked on growing.
Competitors of Muthoot Finance
Muthoot Finance has many competitors, but none of them have as much market size or revenue as it does. Even though they are leading the market, it is vital to understand competitors in a market to have an effective SWOT analysis. Muthoot Finance has a revenue of 1.4 billion dollars while its competitors are far behind in numbers.
Manappuram Finance Limited: They are one of the biggest competitors of Muthoot finance ltd. They have a revenue of over 738.9M dollars. Originated in Kerala in 1949 by Shri V. C. Padmanabhan, the company has more than 4190 branches in the country. The company was first in Kerala to issue bonus shares in the ratio of 1:1 by three times in 5 years.
Shriram City: Founded in 1986 by Ramamurthy Thyagarajan in Kerala, India, Shriram City is a leading Non-Banking Financial Institution with more than 900 branches. It offers services such as Gold loans, vehicle loans, personal loans and investment options like fixed deposits.
ESAF Microfinance: Evangelical Social Action Forum or EFAF was founded as an NGO in 1992 by Shri. K. Paul Thomas and later turned into a small finance bank in 2017. Before it turned into a small finance bank, it was an NBFC(Non-banking financial company)-MFI(Microfinance institution).
As a result of our SWOT analysis, we now have a list of potential areas Muthoot Finance Ltd. needs to work on. The organisation has a broad scale for business due to its diversified geographical reach. However, one of its flaws is heavy reliance on gold. Today, we are witnessing a plunge in gold prices, which adversely impacts their business. As a result, the firm may leverage its leading reputation to expand into new markets and services.
Muthoot Finance Ltd. is a market leader in gold loans, with consistent growth over time.
Due to its consistent returns, the company’s reputation has grown over the years. Despite the pandemic and a slew of challenges, the firm has managed to maintain its position as the industry leader.
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If such topics gain your interest, check out our blogs on Kotak Mahindra Bank, IndusInd Bank and Hindustan Petroleum Corporation Limited.