Muthoot Mercantile May 24 NCD Issue review (Avoid)

• This is the 2nd debt offer from the company since December 2023.
• The aggregate size of the issue is Rs. 100 cr. including green shoe option of Rs. 50 cr.
• This issue is rated IND BBB / Stable by India Rating, which is not preferred by investors.
• For this debt offer, the company has increased the coupon rates.
• Considering poor rating, there is no harm in skipping this lucrative offer.

ABOUT COMPANY:
Muthoot Mercantile Ltd. (MML) is a non-deposit taking non-banking financial company- base layer (NBFC - 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.

As of March 31, 2024, it disbursed Gold Loan and Pronote Loan to customers from a network of 242 branches of the Company in 9 states and union territory of India namely Tamil Nadu, Kerala, Delhi, Haryana, Maharashtra, Madhya Pradesh, Odisha, Punjab, Uttar Pradesh, and Rajasthan. As of March 31, 2024 MML employed 830 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.

For the period ended December 31, 2023 and Fiscal 2023, 2022 and 2021, its interest income from Gold Loan business constituted 97.49%, 96.58%, 98.66% and 98.97% respectively of its total income. Historically, the company has also provided other related services, including asset finance, money transfer and foreign exchange, sales of gold coins and business and personal lending. It is also having arrangements with various agencies and brokers for Money Transfer and Insurance Business. Its Gold Loan portfolio as of December 31, 2023 comprised approximately 0.97 lakhs customers aggregating a principal amount of Rs. 579.25 cr. in Gold Loan, which accounted for 95.12% of total loans. Its Gold Loan portfolio as of December 31, 2023, Fiscal 2023, Fiscal 2022 and Fiscal 2021 had outstanding principal amounting to Rs. 579.25 cr., Rs. 494.70 cr., Rs. 332.56 cr., and Rs. 284.69 cr. respectively and has grown at a CAGR of 29.47% from Fiscal 2021 to December 31, 2023.

ISSUE DETAILS:
The company is coming out with its second debt issue. It has planned a secured NCD issue with a base size of Rs. 50 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. 100 cr. The company is issuing secured, redeemable non-i.e. Rs. 1000) thereon, thereafter. The issue opens for subscription on May 06, 2024, and will close on or before May 17, 2024. Post allotment, NCDs will be listed on BSE. MML is spending Rs. 1.70 cr. for this Rs. 100 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 367 days, 18 months, 24 months, 36 months, 60 months and 75 months. It offers a coupon rate ranging from 10.50% to 10.80% with interest payment options of Monthly or Cumulative, as per the series opted by the investors. The allotment will be in demat mode only. Put and Call option is not applicable for this issue. It offers additional incentive of 0.50% to Senior Citizens.

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.

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. 94.67 cr. / Rs. 18.19 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 20.01 cr. on a total income of Rs. 91.15 cr. Thus it posted steady growth in its top and bottom lines for the reported periods.

MML's net NPA for the above period stood at 0.16% (FY21), 0.33% (FY22), 0.11% (FY23), and 0.45% (9M FY24). Its debt-equity ratio as of December 31, 2023, at 3.85 will stand at 4.51 post this issue. As of the said date, its paid up equity capital of Rs. 29.42 cr. is supported by free reserves of Rs. 121.94 cr.

Conclusion / Investment Strategy

This is the second debt offer from MML since December 2023. It has posted an average financial performance so far. Though this offer has lucrative coupon rates, poor rating is major concern, hence, there is no harm in skipping it.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on May 5, 2024

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 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: dilip_davda@rediffmail.com ).

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