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Muthoot Finance
IPO Fact Sheet
Issue details
Issue opens : April 18, 2011
Issue closes : April 21, 2011
Issue size : Rs824-901 crore
Offer size : 5.15 crore shares
Face value : Rs10
Issue to public : 5.15 crore shares
of which
QIB portion : 50% of issue
Non-institution portion : 15% of issue
Retail portion : 35% of issue
IPO rating : 4/5 (Crisil & ICRA)
Price band : Rs160-175 per share
Muthoot Finance Ltd (MFL) is coming out with an initial
public offering (IPO) of 5.15 crore equity shares of face
value of Rs10 each. Post-issue, the shareholding of the
promoters in the company will fall to 80.12% from the current
holding of 93%. The issue is priced at Rs160-175 per share,
translating into 4.9x M8FY2011book value (pre-issue) at the
upper end of the price band. However based on post issue
equity, the company would trade at 3.2x M8FY2011 book
value (BV). At the upper end of the price band MFL intends
to raise Rs901 crore. The company plans to use the proceeds
to augment its capital base to meet future capital
requirements.
Objects of the issue
The company aims to augment its capital base to meet its
future capital requirements to provide for funding of loans
to its customers and to receive the benefits of listing of the
equity shares on the stock exchange.
Company background
MFL is the largest gold financing company in India in terms
of loan portfolio. It has been classified as “Systemically
Important Non-deposit taking NBFC” by the Reserve Bank of
India (RBI). The company provides personal and business
loans secured by gold jewellery, or gold loans, primarily to
individuals who possess gold jewellery but cannot access
formal credit within a reasonable time. MFL had 1,921
branches (as on August 2010) spread over 20 states and two
union territories. Seventy per cent of the company’s branches
are located in the southern region but MFL has started
focusing on the northern region also. The outstanding gold
loan portfolio of MFL at the end of M8FY2011 was Rs9,810
crore, which is the highest among the other gold financing
non-banking finance companies (NBFCs). In addition, MFL’s
branch network is the largest among the gold loan NBFCs in
India (as per an IMac report).
Key investment positives
Market leader in gold loan segment
MFL is the largest gold financing company in India in terms
of loan portfolio. The company’s outstanding gold loans
portfolio was around Rs9,810 crore in the eight months ended
FY2011. The company has approximately 20% market share
in the gold loan segment, which is served by several
specialised NBFCs, banks etc.
Wide geographical presence
Being a dominant player in the southern region, the company
is expanding into the northern region and select areas of
the eastern region which would be a key driver of its growth
in the coming years. It has about 2,600 branches (as in
November 2011) of which approximately 70% are in the
southern region. In addition, the company’s branch network
remains the highest among the other NBFCs which gives
edge to its business.
Strong brand name, track record and promoter
support
The company has an operating history of over a period of
70 years since M George Muthoot founded a gold loan
business in 1939. The business is also well supported by
the high net worth promoters, who are members of the
Muthoot family.
Strong funding profile
MFL has a diversified funding mix and sources funds through
multiple channels like bank borrowings, securitisation, nonconvertible
debentures (gold bonds) etc. The company funds
a large part (about 50%) of its requirement through Muthoot
Gold Bonds, which is popular among investors. It has been
assigned an “A1+” rating by ICRA for commercial paper
and for short-term non-convertible debentures of Rs200
crore and a “P1+” rating by CRISIL for short-term debt
instruments of Rs1,000 crore. MFL intends to tie up for
long-term institutional funding by improving its ratings for
long-term debt instruments which will further improve its
cost ratios.
Quick turnaround time a key differentiator
The company’s branches are located close to customers
and operate as per their convenience. Further, the branch
employees are well trained to appraise collateral and disburse
loans in minimum time. The company disburses an average
loan ticket size of Rs20,000 within five minutes from the
time gold is tendered to the appraiser. High quality
customer service and short response time are significant
competitive strengths that differentiate MFL’s services and
products from those provided by commercial banks.
Robust operational metrics
With an average net interest margin of 11% and return on
equity in excess of 30%, the company’s operational metrics
stand among the best in the industry. Its non-performing
assets (NPAs) were at 0.35% of loans for 8MFY2011,
suggesting strong asset quality.
Key risks
Regulatory risks
The biggest risk for these companies would be the
sustainability of regulatory arbitrage vis–a-vis banks and
other NBFCs. For example, MFL benefits in terms of easy
Know Your Client norms, and independence to price products
(unlike micro-finance institutions), expand branch network
and recovery loans.
Macro risks
The key macro concerns can affect the company’s
performance. For example, a sharp increase in the interest
rates may squeeze its margin while a sharp correction in
gold’s price may contribute to its NPAs.
Valuations
At the upper end of the price band the issue is priced at
3.2x M8FY2011 book value, which is at a premium to
Manapuram General Finance and the other NBFCs. The
premium pricing is due to a leadership position in its
segment, strong brand visibility and better operational
metrics. However, considering the regulatory risks in the
sector and the other macro factors the company should
trade at a slight discount to the larger NBFCs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Muthoot Finance
IPO Fact Sheet
Issue details
Issue opens : April 18, 2011
Issue closes : April 21, 2011
Issue size : Rs824-901 crore
Offer size : 5.15 crore shares
Face value : Rs10
Issue to public : 5.15 crore shares
of which
QIB portion : 50% of issue
Non-institution portion : 15% of issue
Retail portion : 35% of issue
IPO rating : 4/5 (Crisil & ICRA)
Price band : Rs160-175 per share
Muthoot Finance Ltd (MFL) is coming out with an initial
public offering (IPO) of 5.15 crore equity shares of face
value of Rs10 each. Post-issue, the shareholding of the
promoters in the company will fall to 80.12% from the current
holding of 93%. The issue is priced at Rs160-175 per share,
translating into 4.9x M8FY2011book value (pre-issue) at the
upper end of the price band. However based on post issue
equity, the company would trade at 3.2x M8FY2011 book
value (BV). At the upper end of the price band MFL intends
to raise Rs901 crore. The company plans to use the proceeds
to augment its capital base to meet future capital
requirements.
Objects of the issue
The company aims to augment its capital base to meet its
future capital requirements to provide for funding of loans
to its customers and to receive the benefits of listing of the
equity shares on the stock exchange.
Company background
MFL is the largest gold financing company in India in terms
of loan portfolio. It has been classified as “Systemically
Important Non-deposit taking NBFC” by the Reserve Bank of
India (RBI). The company provides personal and business
loans secured by gold jewellery, or gold loans, primarily to
individuals who possess gold jewellery but cannot access
formal credit within a reasonable time. MFL had 1,921
branches (as on August 2010) spread over 20 states and two
union territories. Seventy per cent of the company’s branches
are located in the southern region but MFL has started
focusing on the northern region also. The outstanding gold
loan portfolio of MFL at the end of M8FY2011 was Rs9,810
crore, which is the highest among the other gold financing
non-banking finance companies (NBFCs). In addition, MFL’s
branch network is the largest among the gold loan NBFCs in
India (as per an IMac report).
Key investment positives
Market leader in gold loan segment
MFL is the largest gold financing company in India in terms
of loan portfolio. The company’s outstanding gold loans
portfolio was around Rs9,810 crore in the eight months ended
FY2011. The company has approximately 20% market share
in the gold loan segment, which is served by several
specialised NBFCs, banks etc.
Wide geographical presence
Being a dominant player in the southern region, the company
is expanding into the northern region and select areas of
the eastern region which would be a key driver of its growth
in the coming years. It has about 2,600 branches (as in
November 2011) of which approximately 70% are in the
southern region. In addition, the company’s branch network
remains the highest among the other NBFCs which gives
edge to its business.
Strong brand name, track record and promoter
support
The company has an operating history of over a period of
70 years since M George Muthoot founded a gold loan
business in 1939. The business is also well supported by
the high net worth promoters, who are members of the
Muthoot family.
Strong funding profile
MFL has a diversified funding mix and sources funds through
multiple channels like bank borrowings, securitisation, nonconvertible
debentures (gold bonds) etc. The company funds
a large part (about 50%) of its requirement through Muthoot
Gold Bonds, which is popular among investors. It has been
assigned an “A1+” rating by ICRA for commercial paper
and for short-term non-convertible debentures of Rs200
crore and a “P1+” rating by CRISIL for short-term debt
instruments of Rs1,000 crore. MFL intends to tie up for
long-term institutional funding by improving its ratings for
long-term debt instruments which will further improve its
cost ratios.
Quick turnaround time a key differentiator
The company’s branches are located close to customers
and operate as per their convenience. Further, the branch
employees are well trained to appraise collateral and disburse
loans in minimum time. The company disburses an average
loan ticket size of Rs20,000 within five minutes from the
time gold is tendered to the appraiser. High quality
customer service and short response time are significant
competitive strengths that differentiate MFL’s services and
products from those provided by commercial banks.
Robust operational metrics
With an average net interest margin of 11% and return on
equity in excess of 30%, the company’s operational metrics
stand among the best in the industry. Its non-performing
assets (NPAs) were at 0.35% of loans for 8MFY2011,
suggesting strong asset quality.
Key risks
Regulatory risks
The biggest risk for these companies would be the
sustainability of regulatory arbitrage vis–a-vis banks and
other NBFCs. For example, MFL benefits in terms of easy
Know Your Client norms, and independence to price products
(unlike micro-finance institutions), expand branch network
and recovery loans.
Macro risks
The key macro concerns can affect the company’s
performance. For example, a sharp increase in the interest
rates may squeeze its margin while a sharp correction in
gold’s price may contribute to its NPAs.
Valuations
At the upper end of the price band the issue is priced at
3.2x M8FY2011 book value, which is at a premium to
Manapuram General Finance and the other NBFCs. The
premium pricing is due to a leadership position in its
segment, strong brand visibility and better operational
metrics. However, considering the regulatory risks in the
sector and the other macro factors the company should
trade at a slight discount to the larger NBFCs.
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