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Issue Snapshot
Issue Open 18-Apr-11
Issue Close 20-Apr-11
Price Band (INR) 160-175
Issue Size (INR Bn) 8.24 - 9.01
Market Cap (INR Bn) 59.47 - 65.05
Issue Size (No. of Shares) 51,500,000
Fresh Issue (No.of Shares) 51,500,000
Offer for Sale (No. of Shares) 0
QIB 18,025,000
Non-Institutional 7,725,000
Retail 25,750,000
Face Value (INR) 10
Book Value as of 30.11.10 (INR) 35.33
Capital Structure
Pre Issue Equity (INR Mn) 3202
Post Issue Equity (INR Mn) 3717
Muthoot Finance Limited provides gold and fixed investment,
money transfer, insurance, securities, foreign exchange, vehicle,
and asset finance services, as well as loans against gold.
Headquartered in Kerala, Muthoot Finance Ltd is a non-deposit
taking ‘systemically important' non-banking finance company
(NBFC) incorporated in 1997. It has the largest branch network
among gold loan providers in India with 2,611 branches and a
strong presence in the under-served rural and semi-urban
markets.
Investment Rationale
Largest Gold Financing company in India
Muthoot Finance Ltd (MFL) is the largest gold finance company in
India, in terms of Loan Book, Branch presence as well as market
share, as per IMaCS report. MFL has the largest Branch network
for LAG business, with 2611 branches as on February’11.
Efficient Fund raising
MFL has been able to garner good confidence of retail investors
as well as PE investors alike, who have subsribed to the capital of
MFL in the form of NCDs called Gold Bonds to the tune of INR
33bn and PE investors who contribute 7% of equity of MFL.
Healthy Profitability, Return ratios
MFL has demonstrated healthy Spreads on its Loan book, which
coupled with increased branch efficiency and decreased
Operating Cost ratios have added to the Return Ratios growth.
Going forward, however, we expect the spreads to start tapering
off due to likely increase in Cost of Funds and also compression
in Yields due to regulatory changes.
Investment Concerns
Dependence on single line of business; regional concentration
Increasing competition to lower gold loan yields to put
pressure on margins
Regulatory Hiccups for MFL with respect to state
government statutes like State Money Lenders Act, any
adverse regulatory rulings would impact growth prospects of
the company
Potential risk of brand dilution due to use of the moniker
‘Muthoot’ by other gold loan financiers, may have a brand
dilutive effect
Valuation
MFL, being the largest Gold Loan provider in the country,
would likely grow in line with the industry growth and we
expect it to post an EPS of INR 14.81 and ABV of INR 50.19 for
FY11E. This makes it trade at 12x and 3.5x its P/E and P/ABV
at higher price band. We believe the current pricing captures
the likely growth of MFL, we recommend “SUBSCRIBE”.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Issue Snapshot
Issue Open 18-Apr-11
Issue Close 20-Apr-11
Price Band (INR) 160-175
Issue Size (INR Bn) 8.24 - 9.01
Market Cap (INR Bn) 59.47 - 65.05
Issue Size (No. of Shares) 51,500,000
Fresh Issue (No.of Shares) 51,500,000
Offer for Sale (No. of Shares) 0
QIB 18,025,000
Non-Institutional 7,725,000
Retail 25,750,000
Face Value (INR) 10
Book Value as of 30.11.10 (INR) 35.33
Capital Structure
Pre Issue Equity (INR Mn) 3202
Post Issue Equity (INR Mn) 3717
Muthoot Finance Limited provides gold and fixed investment,
money transfer, insurance, securities, foreign exchange, vehicle,
and asset finance services, as well as loans against gold.
Headquartered in Kerala, Muthoot Finance Ltd is a non-deposit
taking ‘systemically important' non-banking finance company
(NBFC) incorporated in 1997. It has the largest branch network
among gold loan providers in India with 2,611 branches and a
strong presence in the under-served rural and semi-urban
markets.
Investment Rationale
Largest Gold Financing company in India
Muthoot Finance Ltd (MFL) is the largest gold finance company in
India, in terms of Loan Book, Branch presence as well as market
share, as per IMaCS report. MFL has the largest Branch network
for LAG business, with 2611 branches as on February’11.
Efficient Fund raising
MFL has been able to garner good confidence of retail investors
as well as PE investors alike, who have subsribed to the capital of
MFL in the form of NCDs called Gold Bonds to the tune of INR
33bn and PE investors who contribute 7% of equity of MFL.
Healthy Profitability, Return ratios
MFL has demonstrated healthy Spreads on its Loan book, which
coupled with increased branch efficiency and decreased
Operating Cost ratios have added to the Return Ratios growth.
Going forward, however, we expect the spreads to start tapering
off due to likely increase in Cost of Funds and also compression
in Yields due to regulatory changes.
Investment Concerns
Dependence on single line of business; regional concentration
Increasing competition to lower gold loan yields to put
pressure on margins
Regulatory Hiccups for MFL with respect to state
government statutes like State Money Lenders Act, any
adverse regulatory rulings would impact growth prospects of
the company
Potential risk of brand dilution due to use of the moniker
‘Muthoot’ by other gold loan financiers, may have a brand
dilutive effect
Valuation
MFL, being the largest Gold Loan provider in the country,
would likely grow in line with the industry growth and we
expect it to post an EPS of INR 14.81 and ABV of INR 50.19 for
FY11E. This makes it trade at 12x and 3.5x its P/E and P/ABV
at higher price band. We believe the current pricing captures
the likely growth of MFL, we recommend “SUBSCRIBE”.
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