Muthoot Mercantile July 25 NCD issue review - (Avoid)

•    This is the 6th debt offer from the company since December 2023.
•    The last debt offer was in March 2025.
•    This issue is rated IND BBB / Stable by India Rating, the least preferred by investors in general.
•    For this debt offer, the company has reduced the coupon rates.
•    Considering poor rating, and lowered rates, there is no harm in skipping this offer. 

ABOUT COMPANY:
Muthoot Mercantile Ltd. (MML) is a non-deposit taking non-banking financial company- base layer registered with the RBI under section 45-IA of the RBI Act, primarily engaged in the gold loan sector lending money against the pledge of household and/or used gold jewellery (“Gold Loan”) primarily to retail customers who require immediate availability of funds, but who do not have access to formal credit on an immediate basis and are also engaged in providing unsecured loans (“Pronote Loan”) to individual customers for their personal needs. It is also having arrangements with various agencies and brokers for Money Transfer and Insurance Business.

As of June 30, 2025, it disbursed Gold Loan and Pronote Loan to customers from a network of 307 branches of the Company in 11 states and 1 union territory of India namely Tamil Nadu, Kerala, Delhi, Haryana, Maharashtra, Madhya Pradesh, Odisha, Punjab, Uttar Pradesh, West Bengal and Rajasthan. As of June 30, 2025, MML employed 1,108 persons in its operations. Its branches function as the key point of contact for loan origination, disbursement, and collection processes as well as facilitating customer interaction.

Its Gold Loan portfolio as of March 31, 2025 comprised approximately 1.60 lakh customers aggregating a Principal amount of Rs.  847.56 cr. in Gold Loan, which accounted for 99.51% of its total loans. MML’s Gold Loan portfolio as of Fiscal 2025, Fiscal 2024 and Fiscal 2023, had outstanding principal amounting to Rs. 847.56 cr., Rs. 646.59 cr., Rs. 494.70 cr., respectively and has grown at a CAGR of 30.89% from Fiscal 2023 to Fiscal 2025.

ISSUE DETAILS:
The company is coming out with its 6th debt issue of 1250000 NCD issue with a base size of Rs. 75 cr. and has a green shoe option to retain oversubscription to the tune of Rs. 50 cr., thus the overall size of the debt issue will be Rs. 125 cr. The company is issuing secured, redeemable non-convertible-debentures having a face value of Rs. 1000 each. A minimum application is to be made of 10 NCDs (i.e., Rs. 10000) and in multiple of 1 NCD (i.e., Rs. 1000) thereon, thereafter. The issue opens for subscription on July 16, 2025, and will close on or before July 29, 2025. Post allotment, NCDs will be listed on BSE. MML is spending Rs. 0.98 cr. for this Rs. 125 cr. NCD issue and from the net proceeds, it will utilize at least 75% for the purpose of onward lending, financing, repayment of existing borrowings, and maximum up to 25% for general corporate purposes. 

The issue is solely lead managed by Vivro Financial Services Pvt. Ltd. and KFin Technologies Ltd. is the registrar of the issue. Mitcon Credential Trusteeship Services Ltd is the debenture trustee. 

This NCD issue has tenors of 400 days, 36 months, and 73 months. It offers a coupon rate ranging from 9.50% to 10.25% with interest payment options of Monthly or Cumulative, as per the series opted by the investors. 

ISSUE RATINGS:
This debt offer is rated IND BBB/ Stable by India Ratings and Research Pvt. Ltd. The rating of NCDs by India Ratings indicates that instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations and carry moderate credit risk. This rating is not a recommendation or suggestion, directly or indirectly, to buy, sell, make or hold securities and investors should take their own decisions. The rating provided by rating agency may be suspended, withdrawn or revised at any time by the assigning rating agency on the basis of new information etc., and should be evaluated accordingly.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, MML has posted a total income of Rs. 49.39 cr. / Rs. 14.02 cr. (FY21), Rs. 67.02 cr. / Rs. 17.02 cr. (FY22), and Rs. 94.78 cr. / Rs. 17.70 cr. (FY23), Rs. 131.78 cr. / Rs. 24.28 (FY24), Rs. 166.43 cr. / Rs. 28.09 cr. (FY25). The company posted average growth in its top and bottom lines for the reported periods.

MML’s net NPA stood at 1.36% as of March 31, 2025, against 0.35% as of March 31, 2024, and 0.11% as of March 31, 2023.  Its debt-equity ratio as of March 31, 2025, of 3.96 will stand enhanced to 4.63 post this issue. Thus, its debt-equity ratio is at a high level.