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Muthoot Fincorp Jan. 2020 NCD offer review (May apply)

Muthoot Fincorp Limited Logo
    • This is the 5th debt offer from this company since July 2014.
    • Issue is rated as CRISIL/A Stable and BWR/A+ (Stable).
    • Coupon rates are attractive considering falling interest rate regime.
    • Moderate investment may be considered for long term.

    About Company:

    Muthoot Fincorp Ltd. (MFL) is a non-deposit taking, systemically important NBFC registered with the RBI bearing registration no. 16.00170 dated July 23, 2002 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 Bigg 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 our Company as of September 30, 2019 comprised approximately 31.15 lakhs loan accounts that were serviced through 3,569 branches located across 20 states, union territory of Andaman and Nicobar Islands and the national capital territory of Delhi. As of September 30, 2019, our Company employed 16,583 employees including 308 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 250 cr. It has green shoe option to retain oversubscription of Rs 230 cr. thus making the overall size of the offer Rs 480 cr. Issue opens for subscription on 09.01.2020 and will close on or before 04.02.2020. 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 6.15 cr. for the proceeds of the entire amount of Rs 480 cr. Out of the available net proceeds 75% will be used for working capital, repayment of interest and principal of existing loans and the balance for general corporate purpose.

    This is the 5th debt offer from the company since July 2014. Last offer was in September 2019.

    This offer has tenures of 400 days, 24 months, 38 months and 60 months. It offers coupon rates ranging from 9.00% to 10% depending on the options applied for. Interest payment will be either Monthly, Yearly 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 Catalyst Trusteeship Ltd. is the Debenture Trustee.

    Coupon Rates for Eash Series

    Series 1 Series 2 Series 3 Series 4 Series 5 Series 6 Series 7 Series 8 Series 9 Series 10 Series 11
    Nature Secured
    Frequency of Interest Payment Monthly Monthly Monthly Monthly Annually Annually Annually Cumulative Cumulative Cumulative Cumulative
    Tenor 400 days 24 Months 38 Months 60 Months 24 Months 38 Months 60 Months 400 days 24 Months 38 Months 60 Months
    Minimum Application Rs 10,000 (10 NCDs) across all Series
    Face Value/ Issue Price of NCDs Rs 1,000
    In Multiples of thereafter (Rs ) Rs 1,000 (1 NCD)
    Mode of Interest Payment Through various Options Available
    Coupon Rate (Retail) 9.00% 9.25% 9.40% 9.50% 9.65% 9.90% 10.00% NA NA NA NA
    Amount on Maturity Rs 1,000 Rs 1,000 Rs 1,000 Rs 1,000 Rs 1,000 Rs 1,000 Rs 1,000 Rs 1,102 Rs 1,202 Rs 1,348 Rs 1,611
    Effective Yield per Annum 9.36% 9.64% 9.81% 9.91% 9.64% 9.90%% 9.99% 9.25% 9.64% 9.90% 10.00%
    Put and Call Option Not Applicable

    Issue Ratings:

    This offer is rated as CRISIL/A Stable by CRISIL and BWR/A+ (Stable) by Brickwork Ratings. 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 2657.39 cr. / Rs 119.90 cr. (FY18) and Rs 3353.76 cr. / Rs 372.61 cr. (FY19). For the half year and six months period ended September 30, 2019 and Fiscal 2019 revenues from Gold loan business constituted 82.85% and 82.86% of its total income on standalone basis as per Ind AS, respectively. For the half year and six months period ended September 30, 2019 and Fiscal 2019 the gold loan portfolio of the Company earned an interest of Rs 1091.22 cr. and Rs 2058.97 cr. on standalone basis as per Ind AS, respectively. For the said periods, it's Gross and Net NPAs were 2.62%/1.17% and 3.24%/1.46% respectively.

    As on 30.09.19 it's paid up equity capital of Rs 193.71 cr. is supported by free reserves of Rs 2755 cr. Post issue its current debt equity ratio of 3.77 will stand enhanced to 3.92.

Conclusion / Investment Strategy

Coupon rates are attractive with A+ (Stable) rating amidst falling interest scenario. Currently many debt offers are being re-rated and recent offers are receiving lukewarm response. Considering these, cash surplus investors looking at steady returns may consider moderate investment for long term. (Subscribe for long term).

Review By Dilip Davda on January 8, 2020

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.


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