Muthoot Fin May 22 NCD Tranche II review (May apply)

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•    This is the 25th debt offer from MFL since August 2011. 
•    Last offer was in April 2022. 
•    It has posted growth in the reported financial periods. 
•    It has scaled up coupon rates at the lower end.
•    Investors looking for steady income may consider parking of funds.

Muthoot Finance Ltd. (MFL) is a frequent visitor to the debt market with its offer. This is its 25th debt offer since August 2011 and thus it is marking the silver jubilee for debt offers. It is the largest gold loan NBFC in India in terms of the loan portfolio. According to the ICRA Analytics Limited (Formerly known as ICRA Online Limited) Industry Report, Gold Loans Market in India, 2021 ("ICRA Analytics Industry Report 2021"). MFL was ranked the largest gold loan company in India in terms of the loan portfolio as of March 31, 2021. 

It provides personal loans and business loans secured by gold jewellery, or Gold Loans, primarily to individuals who possess gold jewellery but are not able to access formal credit within a reasonable time, or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements. According to the ICRA Analytics Industry Report 2021, as of March 31, 2021, its branch network was the largest among gold loan NBFCs in India. MFL's Gold Loan portfolio as of December 31, 2021, comprises approximately 8.52 million loan accounts in India that it serviced through 4,617 branches across 22 states, the national capital territory of Delhi and six union territories in India. As of December 31, 2021, the company employed 26,599 persons in operations. Its branches act as the primary point of sale by assisting with loan origination, disbursal and collection processes as well as facilitating customer interaction.

MFL is coming out with a debt offering of secured, redeemable NCDs of Rs. 1000 each to mobilize Rs. 75 cr. and has a greenshoe option to retain oversubscription to the tune of Rs. 225 cr. making this offer for an overall size of Rs. 300 cr. It has a shelf limit of Rs. 3000 cr. Minimum application to be made is for 10 NCDs (i.e. Rs. 10000) and in multiples of 1 NCD (i.e. Rs. 1000) thereon, thereafter. The issue opens for subscription on May 25, 2022, and will close on or before June 17, 2022. Post allotment, NCDs will be listed on BSE only. MFL is spending Rs. 3.00 cr. for this debt offer of Tranche I. It will use at least 75% of the residual amount for the purpose of onward lending and financing, and up to 25% for general corporate purposes. The company has allocated issue for QIBs 5%, Non-Institutional 5%, HNIs 40% and Retail investors 50%. 

The issue is solely lead managed by A K Capital Services Ltd. and Link Intime India Pvt. Ltd. is the registrar while IDBI Trusteeship Services Ltd. is the Debenture Trustee for this issue. 

This issue is rated ICRA AA+/Stable by ICRA Ltd. The aforesaid rating of the NCDs by ICRA indicates a high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. The rating provided by ICRA may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independently of any other rating. These ratings are not a recommendation to buy, sell or hold securities and investors should make their own decisions. 

This debt offer has tenors of 36 months, 60 months and 84 months. Its coupon rates are ranging from 6.75% to 7.50% with interest payment options of Monthly, Annually or Cumulative as per the selection series by the investors. It is offering a 0.50% additional incentive to HNIs and Retail investors. 

On the financial performance front, on a consolidated basis, for the last two fiscals, MFL has posted a total income of Rs. 9707.27 cr. / Rs. 3168.68 cr. (FY20) and Rs. 11566.42 cr. / Rs. 3818.87 cr. (FY21). For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 3025.10 cr. on a total income of Rs. 9196.32 cr. Thus it has posted growth for the reported financial periods.

Its net NPA grew from 0.8% for FY21 to 3.4% for 9M of FY22 which raises major concern. 

MFL's debt-equity ratio of 2.92 as of December 31, 2021, will stand enhanced to 2.93 post this debt offering.

Conclusion / Investment Strategy

This is the frequent visitor company for debt market offers to mark a silver jubilee. It has scaled up the coupon rates at the lower end. Investors looking for a regular income may consider investing in this AA-rated debt offer.

Review By Dilip Davda on May 23, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.


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