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Issue Highlights:
Issue Size 51,500,000 equity shares of Rs.10 each
Price Band Rs. 160 – Rs. 175
Funds to be Raised Rs. 9012.5 mn
Opens on 18-April-2011
Closes on 21-April-2011
Muthoot Finance Ltd (MFL) is coming out with an Initial Public Offer of 51,500,000 equity shares of Rs.
10 each. Allocation to QIB, non-institutional bidders and retail investors will be 50%, 15% and 35% of
the issue respectively.
Objects of the Issue:
Augment the company ’s capital base to meet the future capital requirements arising out of the growth in
assets.
Company Background:
Muthoot Finance Ltd (MFL) is a ‘Systematically Important Non – Deposit Taking NBFC’ headquartered in
Kochi, Kerala. The company has an operating history of over 70 years since M George Muthoot (the
father of current chairman Mr M. G. George Muthoot) founded a gold loan business in 1939 under the
heritage trading business established by his father, Ninan Mathai Muthoot in 1887. The company was
originally incorporated as a private limited company in 1997 as ‘The Muthoot Finance Pvt. Ltd’ and
converted into a public limited company in 2008 with its present name.
With a gold loan portfolio of Rs 129 bn and holding 97.6 tons of gold jewellery as on November 30, 2010
MFL is the largest gold financing company in India comprising approximately 4.1 mn loan accounts. In
terms of the value of estimated gold loan portfolio, MFL had a market share of 19.5% in FY10. As
against this, its competitor Manappuram General Finance and Leasing had a market share of 6.8% in
FY10. Manappuram Finance held 46.5 tons of gold as on December 31, 2010.
As on February 28, 2011 it had a branch network of 2611, serving 67953 customers per day on an
average. MFL’s customers are typically small businessmen, vendors, traders, farmers and salaried
individuals, who for reasons of convenience, accessibility or necessity avail its credit facilities by
pledging their gold jewelry with the company. The average ticket-size of loans increased to Rs 31,553
from Rs 12,000 around 2 years back. The part reason for increase in this ticket size was the increase in
gold prices.
In addition to gold loan business, MFL provides money transfer services through its branches as subagents
of various registered money transfer agencies and recently has commenced providing collection
agency services. It also operates 3 windmills in the state of Tamil Nadu.
Key Positives:
· Bright Prospects of Gold Financing in India – India is one of the largest markets for gold,
accounting for 10% of world gold stock with an annual demand of ~700 tons in FY10. Lending against
gold has been one of the most popular instruments based on gold, and it works well with the Indian
rural population, which views gold as an important savings instrument that is liquid. In FY10 gold loans
market in India was estimated between Rs 350bn and Rs 400 bn with a CAGR of ~40% during FY02-
FY10. Within this the organized gold loan market was 1.2% of total gold loans. The gold loans market
is significantly under-penetrated and is expected to continue growing at the rate of 35-40% in the
future.
· Strong Regional Presence and Brand Name – Due to early entry in the gold finance business MFL
has built a recognizable brand in the rural and semi-urban markets of India, particularly in the
southern states of Tamil Nadu, Kerala, Andhra Pradesh and Karnataka. As on November 30, 2010
these southern states constituted 75.28% of the company’s gold loan portfolio and as on February 28,
2011 out of the 2611 branches, 1753 branches were located in South India.
· Good Track Record and Management Expertise – The company’s promoters have been in this
business for over past 70 years. Its senior management team has extensive experience in the gold
loan industry and has demonstrated the ability to grow the business through their operational
leadership, strategic vision and ability to raise capital. As a result its gold loan portfolio grew to 129bn
as on November 30, 2011, thus making it the largest gold loan company in India.
· Strong Asset Growth without impact on Asset Quality – MFL’s assets and net profits have grown
at a CAGR of 61.8% and 70.2% respectively over FY06-FY10. The company has been able to achieve
this growth while keeping its Gross NPA levels low at 0.35% as on November 30, 2011.
Key Concerns:
· Gold loan business constituted 98.5% of revenues as on November 30, 2011. So any major decline in
gold prices in future can adversely impact the company’s revenue and net profit growth.
· Major part of business and branch network is concentrated in South India. So any disruption or
downturn in the economy of the region can adversely affect the company’s operations.
· Increased competition from other NBFCs and banks in gold financing can put downward pressure on
the net interest margins.
· As per recent RBI notification by RBI, loans sanctioned by banks to NBFCs for lending against gold
cannot be classified as priority loans. This may put upward pressure on cost of funds of MFL in future.
· Deterioration in asset quality is a key risk to our investment call.
Valuation and Recommendation:
At the upper band of Rs 175 the issue is priced at 2.2x FY12E book value of Rs 78. This valuation is at par
with its competitor Manappuram General Finance which is trading at exactly the same valuation of 2.2x its
FY12E book value, but is having lower RoE than MFL. Considering the larger size and strong brand image of
MFL, the bright prospects of gold financing in India, good track record of management and lower NPA levels
we recommend investors to ‘SUBSCRIBE’ to the issue.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Issue Highlights:
Issue Size 51,500,000 equity shares of Rs.10 each
Price Band Rs. 160 – Rs. 175
Funds to be Raised Rs. 9012.5 mn
Opens on 18-April-2011
Closes on 21-April-2011
Muthoot Finance Ltd (MFL) is coming out with an Initial Public Offer of 51,500,000 equity shares of Rs.
10 each. Allocation to QIB, non-institutional bidders and retail investors will be 50%, 15% and 35% of
the issue respectively.
Objects of the Issue:
Augment the company ’s capital base to meet the future capital requirements arising out of the growth in
assets.
Company Background:
Muthoot Finance Ltd (MFL) is a ‘Systematically Important Non – Deposit Taking NBFC’ headquartered in
Kochi, Kerala. The company has an operating history of over 70 years since M George Muthoot (the
father of current chairman Mr M. G. George Muthoot) founded a gold loan business in 1939 under the
heritage trading business established by his father, Ninan Mathai Muthoot in 1887. The company was
originally incorporated as a private limited company in 1997 as ‘The Muthoot Finance Pvt. Ltd’ and
converted into a public limited company in 2008 with its present name.
With a gold loan portfolio of Rs 129 bn and holding 97.6 tons of gold jewellery as on November 30, 2010
MFL is the largest gold financing company in India comprising approximately 4.1 mn loan accounts. In
terms of the value of estimated gold loan portfolio, MFL had a market share of 19.5% in FY10. As
against this, its competitor Manappuram General Finance and Leasing had a market share of 6.8% in
FY10. Manappuram Finance held 46.5 tons of gold as on December 31, 2010.
As on February 28, 2011 it had a branch network of 2611, serving 67953 customers per day on an
average. MFL’s customers are typically small businessmen, vendors, traders, farmers and salaried
individuals, who for reasons of convenience, accessibility or necessity avail its credit facilities by
pledging their gold jewelry with the company. The average ticket-size of loans increased to Rs 31,553
from Rs 12,000 around 2 years back. The part reason for increase in this ticket size was the increase in
gold prices.
In addition to gold loan business, MFL provides money transfer services through its branches as subagents
of various registered money transfer agencies and recently has commenced providing collection
agency services. It also operates 3 windmills in the state of Tamil Nadu.
Key Positives:
· Bright Prospects of Gold Financing in India – India is one of the largest markets for gold,
accounting for 10% of world gold stock with an annual demand of ~700 tons in FY10. Lending against
gold has been one of the most popular instruments based on gold, and it works well with the Indian
rural population, which views gold as an important savings instrument that is liquid. In FY10 gold loans
market in India was estimated between Rs 350bn and Rs 400 bn with a CAGR of ~40% during FY02-
FY10. Within this the organized gold loan market was 1.2% of total gold loans. The gold loans market
is significantly under-penetrated and is expected to continue growing at the rate of 35-40% in the
future.
· Strong Regional Presence and Brand Name – Due to early entry in the gold finance business MFL
has built a recognizable brand in the rural and semi-urban markets of India, particularly in the
southern states of Tamil Nadu, Kerala, Andhra Pradesh and Karnataka. As on November 30, 2010
these southern states constituted 75.28% of the company’s gold loan portfolio and as on February 28,
2011 out of the 2611 branches, 1753 branches were located in South India.
· Good Track Record and Management Expertise – The company’s promoters have been in this
business for over past 70 years. Its senior management team has extensive experience in the gold
loan industry and has demonstrated the ability to grow the business through their operational
leadership, strategic vision and ability to raise capital. As a result its gold loan portfolio grew to 129bn
as on November 30, 2011, thus making it the largest gold loan company in India.
· Strong Asset Growth without impact on Asset Quality – MFL’s assets and net profits have grown
at a CAGR of 61.8% and 70.2% respectively over FY06-FY10. The company has been able to achieve
this growth while keeping its Gross NPA levels low at 0.35% as on November 30, 2011.
Key Concerns:
· Gold loan business constituted 98.5% of revenues as on November 30, 2011. So any major decline in
gold prices in future can adversely impact the company’s revenue and net profit growth.
· Major part of business and branch network is concentrated in South India. So any disruption or
downturn in the economy of the region can adversely affect the company’s operations.
· Increased competition from other NBFCs and banks in gold financing can put downward pressure on
the net interest margins.
· As per recent RBI notification by RBI, loans sanctioned by banks to NBFCs for lending against gold
cannot be classified as priority loans. This may put upward pressure on cost of funds of MFL in future.
· Deterioration in asset quality is a key risk to our investment call.
Valuation and Recommendation:
At the upper band of Rs 175 the issue is priced at 2.2x FY12E book value of Rs 78. This valuation is at par
with its competitor Manappuram General Finance which is trading at exactly the same valuation of 2.2x its
FY12E book value, but is having lower RoE than MFL. Considering the larger size and strong brand image of
MFL, the bright prospects of gold financing in India, good track record of management and lower NPA levels
we recommend investors to ‘SUBSCRIBE’ to the issue.
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