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Muthoot Fincorp April 2021 NCD offer review (May apply)

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  • This is the 9th debt offer from this company since July 2014.
  • This offer comes within two months of previous offer.
  • Issue is rated as CRISIL/A+ Stable and coupon rates are attractive considering falling interest rate regime.
  • Non clarity for consolidated first half of current fiscal on account of pandemic raises concern.

ABOUT COMPANY:

Muthoot Fincorp Ltd. (MFL) is a non-deposit taking, systemically important NBFC registered with the RBI under Section 45 IA of the RBI Act. The Company is one of the largest Indian NBFCs engaged primarily in the business of providing personal and business loans secured by gold jewellery and ornaments ('Gold loans'). Its Gold loan products include Muthoot Blue Guide Gold loan, Muthoot Blue Bright Gold loan, Muthoot Blue Power Gold loan, Muthoot Blue Big Gold loan, Muthoot Blue Smart Gold loan and 24x7 Express Gold loan.

MFL's Gold loan products are structured to serve the business and personal purposes of individuals who do not have ready or timely access to formal credit or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements. The Gold loan portfolio of the Company as of September 30, 2020 comprised approximately 29.27 lakhs loan accounts that were serviced through 3599 branches located across 23 states, union territory of Andaman and Nicobar Islands and the national capital territory of Delhi. As of December 31, 2020, the Company employed 16,470 employees including 236 contracted experts in its operations.

In addition to the Gold loan business, the Company provides foreign exchange conversion and money transfer services as sub-agents of various registered money transfer agencies. It is also engaged in wind energy as well as real estate business through joint ventures. For Real estate business, it is exploring its own land bank.

OFFER DETAILS:

MFL is coming out with its Secured Redeemable Non-Convertible debentures of Rs. 1000 each for a base amount of Rs. 200 cr. It has green shoe option to retain oversubscription of Rs.200 cr. thus making the overall size of the offer Rs. 400 cr. Issue opens for subscription on April 07, 2021, and will close on or before April 29, 2021. Minimum application is to be made for 10 NCDs (Rs. 10000) and in multiple of 1 NCD (Rs. 1000) thereon, thereafter. Post allotment NCDs will be listed on BSE. Application to be made only by ASBA mode and allotment will be in demat mode only. MFL will spend Rs. 5.12 cr. for the proceeds of the entire amount of Rs. 400 cr. Out of the available net proceeds 75% will be used for onward lending, financing, repayment/prepayment of existing borrowings with interest and the balance 25% for general corporate purpose.

This is the 9th debt offer from the company since July 2014. Last offer was in February 2021.

This offer has tenures of 27 months, 38 months, 60 months, 72 months and 87 months. It offers coupon rates ranging from 8.25% to 9.75% depending on the options applied for. Interest payment will be either Monthly or Cumulative as per the choice of investors.

Issue is solely lead managed by SMC Capitals Ltd. while Integrated Registry Management Services Pvt. Ltd. is the registrar to the issue and SBI Cap Trustee Co. Ltd. is the Debenture Trustee.

ISSUE RATINGS:

This offer is rated as CRISIL/A+ Stable by CRISIL. This rating indicates that instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations and carry lowest credit risk.

FINANCIAL PERFORMANCE:

On financial performance front, MFL has (on a consolidated basis) posted total revenue/net profits of Rs. 3353.76 cr. / Rs. 372.61 cr. (FY19) and Rs. 3758.68 cr. / Rs. 257.93 cr. (FY20). Despite surge in total income, it has suffered a setback in FY20.

On a standalone basis, it has posted revenue/net profit of Rs.2484.65 cr. / Rs. 155.46 cr. (FY19), Rs. 2724.68 cr. / Rs. 219.08 cr. (FY20). For the half year period ended September 30, 2020, it has earned net profit of Rs. 166.70 cr. on revenue of Rs. 1416.77 cr. However, it has not given data on consolidated basis for the first half.

Its Net NPAs as at September 30, 2020 rose to 3.31% against 0.62% as at March 31, 2020. This raises concern.

As on December 31, 2020, it's paid up equity capital of Rs. 193.71 cr. is supported by free reserves of Rs. 2770 cr. Post issue its current debt equity ratio of 5.62 will stand enhanced to 5.76.


Conclusion / Investment Strategy

Although coupon rates are attractive with A+ (Stable) rating amidst falling interest rate scenario, considering weak financial data for FY20 and first half of current fiscal, cash surplus risk savvy investors may consider investment at their own risks.

Review By Dilip Davda on Apr 6, 2021

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

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