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I ssue Detai l s
Issue Period
Apr 18 - Apr 21, 2011
Offer Price Band `160 - `175
Issue Size `8.24 - `9.01 bn
Market Cap `59.47 - `65.05 bn
Listing on Exchanges BSE & NSE
IPO Grading Crisil & ICRA (4/5)
Lead Managers
ICICI Sec, Kotak, HDFC
Bank
Issue Break-up
Fresh Issue 51.5 mn shares
QIB 25.75 mn shares
Non-Institutional 7.73 mn shares
Retail
18.03 mn shares
Muthoot Finance Ltd (MFL) is the largest gold financing
company in India. MFL is a “Systemically Important Non-deposit
taking NBFC” headquartered in the southern Indian state of
Kerala. They began operations in 1939. Currently, they have a
pan-India presence with 2,611 branches & 15,664 employees.
MFL’s customers are typically small businessmen, vendors,
traders, farmers and salaried individuals who avail credit
facilities by pledging their gold jewellery.
Objects of The Issue
Augment the capital base to meet the future capital
requirements arising out of growth in business.
Investment Argument
Leadership position and vast scope: MFL is the market leader
in gold financing with a ~20% market share amongst the
organized players. India is one of the largest markets for gold
and as of fiscal 2010, accounts for approximately 10% of the
total world gold stock with an annual demand of
approximately 700 tonnes. The organized Gold Loans market in
India was estimated between ` 350 - ` 400 bn with a CAGR of
~40% during FY02–FY10. However, the organized market
accounted for merely 1.2% of the value of total gold stock in
India.
Strong brand name & track record: MFL was one of the early
entrants into the business of gold financing and they have a
major concentration in the rural & semi-urban areas. This is
seen from the fact that ~67% of their branches are in south &
75% of their AUM is from the southern India. MFL has been in
this business for more than 7 decades now.
Strong asset quality: Though the asset under management
(AUM) of MFL grew at a CAGR of ~82.8% between FY08-FY10,
the gross non-performing assets (NPA) increased slightly from
0.46% to 0.56% during the said period; however, it is still lower
when compared to the industry. This has been mainly on
account of the sentimental value attached with the gold
instruments to the customers which lead to repayment and
redemption of the collateral.
Investment Concerns
The sustainability of the NIMs at the current level is a
concern.
The RoAE of MFL has been on the higher side. However, it
will reduce in the near term due to the IPO proceeds and
then move northwards.
The business is sensitive towards the bullion (gold) prices.
Valuations
The shares of MFL are priced at price to book value of 1.46x & 1.6x on the lower & upper band of the
issue price of its FY13E book value. This is lower than the peer i.e. Manppuram General Finance & Leasing
Ltd (MGFL) which is trading at ~1.9x FY13E. Thus there is some upside available for the investors. We
believe that the market leadership & the opportunity available in the gold financing business should aid in
the growth of the business of MFL going forward. The firm does face competition from other banks &
NBFC’s. However, its NPA levels are one of the lowest seen in the industry. The firm enjoys strong brand
image over its peers and it has the largest branch network in India, in its segment. The strong track
record of the management should enable the firm to maintain a healthy growth rate going forward.
Hence we recommend “Subscribe” to the issue.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
I ssue Detai l s
Issue Period
Apr 18 - Apr 21, 2011
Offer Price Band `160 - `175
Issue Size `8.24 - `9.01 bn
Market Cap `59.47 - `65.05 bn
Listing on Exchanges BSE & NSE
IPO Grading Crisil & ICRA (4/5)
Lead Managers
ICICI Sec, Kotak, HDFC
Bank
Issue Break-up
Fresh Issue 51.5 mn shares
QIB 25.75 mn shares
Non-Institutional 7.73 mn shares
Retail
18.03 mn shares
Muthoot Finance Ltd (MFL) is the largest gold financing
company in India. MFL is a “Systemically Important Non-deposit
taking NBFC” headquartered in the southern Indian state of
Kerala. They began operations in 1939. Currently, they have a
pan-India presence with 2,611 branches & 15,664 employees.
MFL’s customers are typically small businessmen, vendors,
traders, farmers and salaried individuals who avail credit
facilities by pledging their gold jewellery.
Objects of The Issue
Augment the capital base to meet the future capital
requirements arising out of growth in business.
Investment Argument
Leadership position and vast scope: MFL is the market leader
in gold financing with a ~20% market share amongst the
organized players. India is one of the largest markets for gold
and as of fiscal 2010, accounts for approximately 10% of the
total world gold stock with an annual demand of
approximately 700 tonnes. The organized Gold Loans market in
India was estimated between ` 350 - ` 400 bn with a CAGR of
~40% during FY02–FY10. However, the organized market
accounted for merely 1.2% of the value of total gold stock in
India.
Strong brand name & track record: MFL was one of the early
entrants into the business of gold financing and they have a
major concentration in the rural & semi-urban areas. This is
seen from the fact that ~67% of their branches are in south &
75% of their AUM is from the southern India. MFL has been in
this business for more than 7 decades now.
Strong asset quality: Though the asset under management
(AUM) of MFL grew at a CAGR of ~82.8% between FY08-FY10,
the gross non-performing assets (NPA) increased slightly from
0.46% to 0.56% during the said period; however, it is still lower
when compared to the industry. This has been mainly on
account of the sentimental value attached with the gold
instruments to the customers which lead to repayment and
redemption of the collateral.
Investment Concerns
The sustainability of the NIMs at the current level is a
concern.
The RoAE of MFL has been on the higher side. However, it
will reduce in the near term due to the IPO proceeds and
then move northwards.
The business is sensitive towards the bullion (gold) prices.
Valuations
The shares of MFL are priced at price to book value of 1.46x & 1.6x on the lower & upper band of the
issue price of its FY13E book value. This is lower than the peer i.e. Manppuram General Finance & Leasing
Ltd (MGFL) which is trading at ~1.9x FY13E. Thus there is some upside available for the investors. We
believe that the market leadership & the opportunity available in the gold financing business should aid in
the growth of the business of MFL going forward. The firm does face competition from other banks &
NBFC’s. However, its NPA levels are one of the lowest seen in the industry. The firm enjoys strong brand
image over its peers and it has the largest branch network in India, in its segment. The strong track
record of the management should enable the firm to maintain a healthy growth rate going forward.
Hence we recommend “Subscribe” to the issue.
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