Muthoot Finance Feb 2019 Tranche-I NCD offer review (May apply)

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•    MFL is a mega player in gold loan segment with south centric business.
•    Frequent visitor for debt market.
•    This issue is rated ICRA AA/Stable and CRISIL AA/Stable.
•    Total shelf limit for NCDs is Rs. 4000 cr.

Muthoot Finance Ltd. (MFL) a flagship NBFC (Non Banking Finance Company) of the Muthoot Group is primarily in the business of providing finance against gold jewellery and has diversified into affordable housing finance as well as micro finance business. The non-gold loan portfolio remains in the range of 15 to 20% of the overall portfolio of the company. MFL is also in the hospitality, healthcare, media, education, information technology, foreign exchange, insurance distribution, and money transfer businesses. The company had a nationwide network of 4,370 branches were located in the south Indian states of Tamil Nadu (944 branches), Kerala (625 branches), Andhra Pradesh (378 branches), Karnataka (471 branches), Telangana (259 branches), Union Territory of Pondicherry (8 branches) and Andaman & Nicobar (4 branches). Any disruption, disturbance or breakdown in the economy of southern India could adversely affect the result of its business and operations. As of March 31, 2018 the south Indian states of Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Telangana, the Union Territory of Pondicherry and Andaman & Nicobar Islands constituted 50.17% of total Gold Loan portfolio. Company's concentration in southern India exposes it to adverse economic or political circumstances that may arise in that region as compared to other NBFCs and commercial banks that may have diversified national presence. If there is a sustained downturn in the economy of southern India, MFL's financial position may be adversely affected.

It is a frequent visitor for debt market fund raising process. Now it plans to mobilize Rs. 100 crore through tranche I of secured redeemable non-convertible debentures of face value of Rs. 1000 each with a green shoe option of Rs. 650 crore making the total issue size of Rs. 750 crore. The company has a total self limit of Rs. 4000 crore.  Object of the issue is utilizing 75% for the purpose of lending and the balance for general corpus funds. Issue has already opened for subscription on 14.02.2019 and will close on or before 14.03.2019. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiple of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Allotment will be compulsory in demat mode.

Tenure for this offer is 24 months, 38 months and  60 months  and coupon rates are ranging from 9.50% to 10.0% and the payment mode of monthly, annually and cumulative as per the choice of investors. Issue is jointly lead managed by Edelweiss Financial Services Ltd. and A K Capital Services Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue and IDBI Trusteeship Services Ltd. is the Debenture Trustee.  Post allotment, NCDs will be listed on BSE.

Proposed issue is rated as ICRA AA Stable and CRISIL AA stable by the respective rating agencies. This rating indicates high degree of safety regarding timely servicing of financial obligations.

On performance front, for fiscal 2018, MFL's standalone profit after tax (PAT) and total income grew to Rs.1784 crore and Rs.60538 crore, from Rs.1200 crore and Rs.5654crore, respectively in the previous fiscal. As on 31.03.17 and 31.03.18 its gross NPAs stood at 2.06% and 6.98% while net NPAs were 1.69% and 6.16% respectively. Its net profit (on a consolidated basis) declined from Rs. 1199.79 cr. (FY17) to Rs. 814.50 cr. (FY18).

For the years ended March 31 2014 2015, 2016, 2017 and 2018 revenues from its Gold Loan business constituted 98.07% 98.19%, 98.49%, 97.95% and 96.66% respectively, of total income In February 2014, it entered the business of providing cash withdrawal services through white label ATMs to customers using cards issued to them by commercial banks and as of September 30, 2018, MFL operates 216 ATMs spread across 18 states. It has also started providing unsecured loans to salaried individuals, loans to traders and self employed. MFL also provide micro-finance, housing finance, vehicle and equipment finance and insurance broking services through its subsidiaries.

As on 30.09.18 it has total employee strength of 23888. For the first half of FY19 it has earned net profit of Rs. 975.39 cr. Post this issue, its current debt equity ratio of 2.75 will stand enhanced to 3.21. Its current paid up equity capital of Rs. 400.58 cr. is supported by free reserves of Rs. 8390 cr. as on 30.09.18.

Conclusion / Investment Strategy

Considering AA Stable ratings and standing of the group in the segment, investors looking for regular income may consider investment in Muthoot Finance NCD.

Review By Dilip Davda on Feb 15, 2019

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 prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. 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.

Email: dilip_davda@rediffmail.com

The Muthoot Finance NCD (Feb 2019) Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered NCD Analysts tells you if Muthoot Finance NCD (Feb 2019) worth investing. The Muthoot Finance NCD (Feb 2019) Note sets the NCD expectations in systematic way which tells you if Muthoot Finance NCD (Feb 2019) good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Muthoot Finance NCD (Feb 2019) by providing NCD recommendations i.e. subscribe, avoid and neutral.