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Muthoot Fincorp Jan 2022 NCD issue review (May apply)

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•    This is the 12th debt offer from this company since July 2014. 
•    This last offer was in September/October 2021. 
•    Issue is rated as CRISIL/A+ Stable and is offering reasonable coupon rates.
•    Investors looking for steady regular returns may park moderate funds.

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 is a part of the "Muthoot Pappachan Group" which has diversified business interests ranging from hospitality, financial services, inflight catering, infrastructure for information technology, automobile sales and services and real estate.

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, 2021, comprised approximately 36.18 lakhs loan accounts. As of September 30, 2021, it operated out of 3658 branches located across 24 states, including the union territory of Andaman and Nicobar Islands and the national capital territory of Delhi and employed 17,013 employees including 233 contracted experts in its operations.

MFL's 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 of the Company, 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 it is specifically designed for salaried customers, with tenure of up to 24 months.

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 the Real estate business, it is exploring its own land bank. 

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 a greenshoe option to retain an oversubscription of Rs. 200 cr. thus making the overall size of the offer Rs. 400 cr. The issue opens for subscription on January 05, 2022, and will close on or before January 28, 2022. Minimum application is to be made for 10 NCDs (Rs. 10000) and in multiples of 1 NCD (Rs. 1000) thereon, thereafter. Post allotment NCDs will be listed on BSE. 

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 purposes. 

This is the 12th debt offer from the company since July 2014. The last offer was in Sept. / Oct. 2021.

This offer has tenures of 27 months, 38 months, 60 months, 72 months and 96 months. It offers coupon rates ranging from 8.00% to 9.00% depending on the options applied for. Interest payment will be either Monthly or Cumulative as per the choice of investors. 

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. 3353.76 cr. / Rs. 372.61 cr. (FY19) and Rs. 3765.99 cr. / Rs. 257.93 cr. (FY20) and Rs. 4101.19 cr. / Rs. 397.28 cr. (FY21). Despite the surge in total income, it has suffered a setback in FY20 in line with general market trends. 

Its Net NPAs as of March 31, 2021, was at 1.01% against 0.62% as of March 31, 2020. As of September 30, 2021, its net NPA stood at 1.64%. This raises a concern. 

As of March 31, 2021, it's paid-up equity capital of Rs. 193.71 cr. is supported by free reserves of Rs. 2476 cr. Post issue (on a consolidated basis) its current debt-equity ratio of 7.38 will stand enhanced to 7.51. 

On an unconsolidated basis, the company has posted a net profit of Rs. 201.25 cr. on a total income of Rs. 1656.06 cr. It has been posting growth in its total income over the years.

Conclusion / Investment Strategy

Its coupon rates are reasonable with A+ (Stable) rating amidst a falling interest rate scenario. 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 January 1, 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 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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