Muthoot Vehicle & Asset Finance Ltd. (MVAFL) is a deposit-taking vehicle and asset finance company operating primarily in the State of Kerala registered with the RBI as a NBFC- D from November 30, 1998. It has been recently re-classified as a NBFC - Investment and Credit Company (NBFC-ICC) pursuant to RBI's recent directive. The company is in the business of granting loans against the security of vehicles and assets predominantly in Kerala and also operates in Coimbatore, Tamil Nadu. It is a part of the Muthoot Group and was incorporated as for undertaking hire-purchase operation.
As on November 15, 2019, it had license to operate 25 branches with a vast majority i.e. 22 branches, located across 12 districts in the state of Kerala. Further, it also holds licenses to operate in Delhi, Coimbatore and Bangalore. Its loan portfolio comprises retail lending and top up loans with vehicle financing constituting the largest component. As at the 6 month period ended September 30, 2019, Fiscal 2019, Fiscal 2018 and Fiscal 2017, MVAFL's total loan portfolio was Rs. 441.04 cr., Rs. 428.11 cr., Rs. 384.53 cr. and Rs, 205.46 cr., of which vehicle loans comprised 94.07%, 93.48%, 90.41% and 86.88%, respectively. As at November 15, 2019, it had 308 permanent employees and 83 employees on contract basis.
Presently, its business operations are primarily focused on retail lending portfolio and cater extensively to retail customers. While in the past it had a wholesale lending business vertical which extended loans to commercial businesses, it has, presently discontinued this vertical to ensure that its resources are concentrated on retail lending portfolio which it believe is more productive and stable. The existing business loans 113 portfolio will be wound down and it do not propose to make fresh disbursement of business loans to corporate clients. It has, though, in Fiscal 2020 started the inventory funding and trade advance vertical which is an aspect of wholesale lending. The average ticket size of its retail loan is Rs. 5 lakh with a tenure ranging from 12 to 84 months with the average tenure of 57 months. As on 30.09.19 its retail lending portfolio had 11665 customers comprising 99.54% of the total asset under management (AUM).
To part finance its plans for onward lending and for repayment of interest and principal of existing loans (75% of the net proceeds) and general corporate funds (25% of the net proceeds), MVAFL is coming out with a maiden debt offer of Secured Redeemable Non-Convertible Debentures of face value of Rs. 1000 each. The base issue size is Rs. 100 cr. and the company has green shoe option to retain oversubscription up to Rs. 100 cr. making the overall issue size of Rs. 200 cr. The issue has already opened for subscription on 25.02.2020 and will close on or before 18.03.2020. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiple of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE.
Issue is solely lead managed by Inga Ventures Pvt. Ltd. IDBI Trusteeship Services Ltd. is the Debenture Trustee and Link Intime India Pvt. Ltd. is the registrar to the issue. The company is spending Rs. 2 cr. to mobilize Rs. 200 cr. debt.
This issue is rated CRISIL/A Stable by CRISIL and CARE BBB+/Stable by CARE. The rating by CRISIL indicates that the instruments are considered to have adequate degree of safety regarding timely servicing of financial obligations and such instruments carry low credit risk. The rating by CARE is later withdrawn vide their letter dated 24.01.2020. CARE rated the instruments with lower rating that indicted that the instruments are considered to have moderate degree of safety regarding timely servicing of financial obligations.
| Series 1 | Series 2 | Series 3 | Series 4 | Series 5 | Series 6 | Series 7 | Series 8 | Series 9 | Series 10 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Frequency of Interest Payment | Monthly | Monthly | Monthly | Annually | Annually | Annually | Cumulative | Cumulative | Cumulative | Cumulative |
| Nature | Secured | |||||||||
| Tenor | 24 months | 38 months | 60 months | 24 months | 38 months | 60 months | 24 months | 38 months | 60 months | 90 months |
| Coupon Rate | 9.25% | 9.50% | 9.75% | 9.50% | 9.75% | 10% | 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 1,193.56 | Rs 1,333.72 | Rs 1,592.29 | Rs 2,000 |
This issue has tenures of 24 months, 38 months, 60 months and 90 months. It offers coupon rates from 9.25% to 10% with monthly, annually and cumulative interest rate payments options.
For the last three fiscals MVAFL has posted total income/net profits of Rs. 38.97 cr. /Rs. 8.47 cr. (FY17), Rs. 54.79 cr. / Rs. 10.18 cr. (FY18) and Rs. 71.25 cr. / Rs. 11.18 cr. (FY19). For the first half of FY20 it has earned net profit of Rs. 1.64 cr. on a total income of Rs. 35.53 cr. against net profit of Rs. 4.51 cr. on a total income of Rs. 32.85 cr. Thus decline in bottom line raises concern despite top line growth.
Its gross / net NPAs as on 30.09.19 has rose to 4.59% / 3.59% raising concern. For FY 19 and FY 18 they were 1.50% / 1.23% and 0.94% / 0.74% respectively.
As on 30.09.19 its paid up equity capital of Rs. 25 cr. is supported by free reserves of Rs. 77 cr. plus. Its current debt equity ratio of 3.72 (as on 30.09.19) will stand enhanced to 5.68 post this debt offer.
This is the first debt offer from Inga Venture and has no previous track record. It had done an IPO of Neogen Chemicals that fared well since listing.
Although vehicle and asset finance sector is poised for growth, and the company is from well known Muthoot group, miniscule performance and the declining bottom line raises concern. Issue is rated on an average. Hence only risk savvy cash surplus investors may consider investment at their own risk. (Other).
Review By Dilip Davda on February 25, 2020
Dilip Davda is a veteran financial journalist associated with the Indian stock market since 1978. He has been contributing to print and electronic media on capital markets, insurance, and finance since 1985.
He is widely recognized for reviewing public issues and non-convertible debentures (NCDs) in the primary market. Drawing on over three decades of market experience and close interaction with merchant bankers, his reviews focus on detailed fundamental and financial analysis of companies, with a special emphasis on SME public issues.
Dilip Davda
SEBI Registered Research Analyst – Mumbai
Registration No.: INH000003127 (Perpetual)
Email: dilip_davda@rediffmail.com
Disclaimer: The information provided herein is solely for educational and informational purposes and does not constitute an offer, solicitation, or recommendation to buy or sell any securities. Readers are advised to consult a qualified financial advisor before making any investment decisions. Investments in the securities market are subject to market risks. The author does not intend to invest in the securities discussed.
