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Muthoot Fincorp Aug 22 NCD issue review (May apply)

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•    This is the 13th debt offer from this company since July 2014. 
•    This last offer was in January 2022. 
•    Issue is rated as CRISIL/A+ Stable and is offering reasonable coupon rates.
•    For this offer it has lowered the upper side coupon rates.
•    Investors looking for steady regular returns may park moderate funds.

Muthoot Fincorp Ltd. (MFL) is one of the prominent gold loan players in the Indian market. From FY2016 to FY2022, MFL has shown a significant increase in its Gold Loan Portfolio at a compound annual growth rate of around 15 % (Source: IMaCS Report). The personal and business loans secured by gold jewellery and ornaments ("Gold loans") offered by it 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 March 31, 2022, comprised approximately 33.12 lakhs loan accounts. As of March 31, 2022, MFL operated out of 3,657 branches located across 24 states, including the union territory of Andaman and Nicobar Islands and the national capital territory of Delhi and employed 17,031 employees including 199 contracted experts in its operations.

It has been engaged in the Gold loans business for over two decades and is headquartered in Kerala, India. MFL provides retail loan products, primarily comprising Gold loans. Its Gold loan products include Muthoot Blue Guide Gold loan, Muthoot Blue Bright Gold loan, Muthoot Blue Power Gold loan, Muthoot Blue Bigg Gold loan, Muthoot Blue Smart Gold loan and 24x7 Express Gold loan. The product, the "24x7 Express Gold loan" can be utilised by individuals who require quick loans against their gold jewellery and who have an existing loan with the Company. This is a type of top-up loan. "Smart Plus Gold loan", the other Gold loan variant is specifically designed for salaried customers, with a tenure of up to 24 months.

MFL is coming out with its Secured Redeemable Non-Convertible debentures of Rs. 1000 each for a base amount of Rs. 250 cr. It has a green shoe option to retain oversubscription of Rs. 250 cr. thus making the overall size of the offer Rs. 500 cr. The issue opens for subscription on August 05, 2022, and will close on or before September 01, 2022. 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. 

MFL will spend about Rs. 5.00 cr. for the proceeds of the entire amount of Rs. 500 cr. However, the issue-related expenses are indicative and are subject to change depending on the actual level of subscription to the Issue, the number of allottees, market conditions and other relevant factors.

Out of the available net proceeds at least 75% will be used for onward lending, financing, repayment/prepayment of existing borrowings with interest and the balance up to 25% for general corporate purposes. 

This is the 13th debt offer from the company since July 2014. The last offer was in January 2022. It has reduced the upper coupon rates this time.

This offer has tenures of 27 months, 38 months, 48 months and 96 months. It offers coupon rates ranging from 8.00% to 8.35% depending on the options applied. Interest payment will be either Monthly or Cumulative as per the selection of the series applied for. 

The issue is solely lead managed by SMC Capitals Ltd. while Integrated Registry Management Services Pvt. Ltd. is the registrar to the issue and Vardhman Trusteeship Pvt. Ltd. is the Debenture Trustee. 

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

On the financial performance front, for the last three fiscals, MFL has (on a consolidated basis) posted total revenue/net profits of Rs. 3765.99 cr. / Rs. 257.93 cr. (FY20), Rs. 4101.19 cr. / Rs. 397.28 cr. (FY21) and Rs. 4355.13 cr. / Rs. 412.55 cr. Thus it has posted steady growth in its top and bottom lines during reported periods.

Its Net NPAs as of March 31, 2022, were at 1.59% against 1.01% as of March 31, 2021. This raises a concern. 

As of March 31, 2022, its paid-up equity capital of Rs. 193.71 cr. is supported by free reserves of Rs. 2994.09 cr. Post issue (on a consolidated basis) its current debt-equity ratio of 6.29 will stand enhanced to 6.42. 

Conclusion / Investment Strategy

Its coupon rates are reasonable with A+ (Stable) rating amidst a falling interest rate scenario. However, for this issue, MFL has reduced the upper coupon rates. Its net NPAs have risen for FY22. The company has been gaining ground with diverse activities. Cash surplus Investors looking for a steady regular return may consider parking of moderate fund.

Review By Dilip Davda on August 4, 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 the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their 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.

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.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

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