Muthoot Finance May 2019 Tranche-II NCD offer review (Subscribe)

  • A frequent visitor to the debt market brings 17th offer since August 2011.
  • This issue is rated ICRA AA/Stable and CRISIL AA/Stable.
  • This issue is for Rs. 1000 cr. with a green shoe option.
  • 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 microfinance 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.

ISSUE DETAILS:

It is a frequent visitor to the debt market fundraising process. Since August 20111 so far it brought 16 debt offers. This is the 17th one.

Now it plans to mobilize Rs. 100 crore through tranche I of secured redeemable non-convertible debentures of the face value of Rs. 1000 each with a green shoe option of Rs. 900 crore making the total issue size of Rs. 1000 crore. The company has a total self-limit of Rs. 4000 crore. The object of the issue is utilizing 75% for the purpose of lending and the balance for general corpus funds.

The issue opens for subscription on 10.05.19 and will close on or before 10.06.2019. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiples of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Allotment will be compulsory in demat mode. Application is to be made under ASBA mode only.

Tenure for this offer is 24 months, 38 months, 60 months and 90 months. It offers coupon rates ranging from 9.25% to 10.00% and the interest payment mode is monthly, annually or cumulative as per the choice of investors. The 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.

Terms and conditions in connection with Secured NCDs Options

I

II

III

IV

V

VI

VII

VIII

IX

X

Frequency of Interest Payment

Monthly*

Monthly*

Monthly*

Annually**

Annually**

Annually**

NA

NA

NA

NA

Who can apply

All categories of investors (Category I, II ,III and IV)

Minimum Application

Rs 10,000 (10 NCDs)

Rs 10,000 (10 NCDs)

Rs 10,000 (10 NCDs)

Rs 10,000 (10 NCDs)

Rs 10,000 (10 NCDs)

Rs 10,000 (10 NCDs)

Rs 10,000 (10 NCDs)

Rs 10,000 (10 NCDs)

Rs 10,000 (10 NCDs)

Rs 10,000 (10NCDs)

In multiples of

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Rs 1,000.00 (1 NCD)

Face Value of NCDs (Rs / NCD)

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Issue Price (Rs / NCD)

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Rs 1,000.00

Tenor from Deemed Date of Allotment

24 months

38 months

60 months

24 months

38months

60 months

24 months

38 months

60 months

90 months

Coupon Rate

9.25%

9.50%

9.75%

9.50%

9.75%

10.00%

N.A

N.A

N.A

N.A

Effective Yield (Per annum) *****

9.25%

9.50%

9.75%

9.50%

9.75%

10.00%

9.25%

9.50%

9.75%

9.67%

Mode of Payment

Through various options available

Amount (Rs / NCD) on Maturity ***

Rs 1,000

Rs 1,000

Rs 1,000

Rs 1,000

Rs 1,000

Rs 1,000

Rs 1,193.56

Rs 1,333.72

Rs 1,592.29

Rs 2,000.00

Maturity Date (From Deemed Date of Allotment)

24 months

38 months

60 months

24 months

38 months

60 months

24 months

38 months

60 months

90 months

Nature of indebtedness

Secured redeemable non-convertible

ISSUE RATING:

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

FINANCIAL PERFORMANCE:

On the 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).

As per CRISIL report, MFL's gross NPAs reduced to 1.9% for the first half of FY19 against 4.4% for 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 a total employee strength of 23888. For the first half of FY19, it has earned a net profit of Rs. 975.39 cr.

Post this issue, its current debt-equity ratio of 2.71 will stand enhanced to 3.14 (based on Rs. 4000 cr. mobilization). Its current paid up equity capital of Rs. 400.58 cr. is supported by free reserves of Rs. 8878 cr. as on 31.12.18.


Conclusion / Investment Strategy

Considering AA Stable ratings by ICRA and CRISIL and the standing of the group in the segment, investors looking for regular steady income may consider long term investment. (Subscribe).

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on May 9, 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 (May 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 (May 2019) worth investing. The Muthoot Finance NCD (May 2019) Note sets the NCD expectations in systematic way which tells you if Muthoot Finance NCD (May 2019) good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Muthoot Finance NCD (May 2019) by providing NCD recommendations i.e. subscribe, avoid and neutral.


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