Muthoot Finance slips 7% as Moody's downgrades outlook to 'negative'

Moody's said the Indian NBFC industry has been affected given disruptions to India's economic activity from the coronavirus outbreak, which will weaken companies' credit profiles

Shares of Muthoot Finance slipped 7 per cent to Rs 692 on the BSE in an otherwise firm market on Wednesday after global rating agency Moody’s downgraded the gold finance company's outlook to 'negative' from 'stable'. In comparison, the S&P BSE Sensex was up 2.2 per cent at 31,369 at 12:00 pm.
 

“Moody's Investor Service has affirmed Muthoot Finance's 'Ba2' Corporate Family Rating and its outlook changed to negative from stable,” the agency said in a rating action on Monday.

Moody's said that the Indian non-banking finance company (NBFC) industry has been affected given disruptions to India's economic activity from the coronavirus outbreak, which will weaken companies' credit profiles.

Given the negative outlook, an upgrade is unlikely for Muthoot Finance in the near term. However, the outlook could return to stable if the company's solvency and liquidity remain stable over the next few quarters. Muthoot's ratings could be downgraded if the company's funding and liquidity profile materially deteriorates during the next 12-18 months, the Moody's report said.

Last month, Fitch Ratings had downgraded the long-term issuer default ratings (IDRs) of Muthoot Finance with ratings placed on Rating Watch Negative (RWN).

The downgrade and RWN reflect the weakening operating environment and the related operational challenges. Slower economic activity will dampen Muthoot Finance’s business growth prospects, while its branch-led distribution model for gold-backed loans, which form 89 per cent of the company’s total loans, will be affected by disruptions from measures to contain the pandemic, Fitch had said.

It expects delinquencies to rise as borrower earnings are affected by the slower economic growth, while recoveries of the gold collateral backing the loans may be delayed as auctions may be affected in the near term.