Muthoot Finance IPO – Must Invest for Investors & Flippers

April 16, 2011   ·   0 Comments

Muthoot Finance Ltd (MFL) is the largest gold financing company in India in terms of loan portfolio. It provides personal and business loans www.stockssavvy.comsecured by gold jewellery, or Gold Loans, primarily to individuals who possess gold jewellery but could not access formal credit within a reasonable time, or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements. It has  increased its branch network to 2,611 branches as of February 28, 2011, andused its branch network to serve an average of 67,953 customers per day in the month of February 2011. As of February 28, 2011, it employed 15,664 persons in its operations.

Gross nonperforming assets (“NPAs”) were at 0.42%, 0.48% and 0.46%, and 0.35% of its gross retail loan portfolio under management as of March 31, 2008, 2009, 2010, and November 30, 2010, respectively.

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Issue Open: April 18 – April 21, 2011

(For QIB Bidders IPO closes on April 20, 2011)

Price Band: Rs. 160 – Rs. 175

Issue Size: Rs. 824.00 cr – Rs. 901.25 crs

Issue Size: 51,500,000 equity shares

QIB                          upto             25,750,000  eq sh

Retail                       atleast         18,025,000  eq sh

Non Institutional      atleast           7,725,000  eq sh

Face Value: Rs 10

Book value: Rs 35.33 (November 30, 2010)

Bid size: – 40 equity shares and in multiples thereof

100% Book built Issue

Capital Structure:

Pre Issue Equity:              Rs. 320.21 cr

Post issue Equity:             Rs. 371.71 cr

Listing: BSE & NSE

Lead Manager: Kotak Mahindra Capital Company Ltd, ICICI Securities Ltd.

Co- Book Lead Manager: HDFC Bank Ltd.

Registrar to issue: Link Intime India Pvt Ltd

Shareholding Pattern of Muthoot Finance:

Pre Issue Post Issue
Promoters 93 % 80.11 %
Public & Other 7 % 19.89 %
Total 100 % 100 %

CRISIL & ICRA IPO grading to Muthoot Finance: 4/5 indicating above average fundamentals

Objects of Issue:

The objects of the Issue are:

•  To augment its capital base to meet future capital requirements to provide for funding of loans to its customers; and.

•  General corporate purposes.

•  Benefit of listing of the Equity Shares on the Stock Exchanges.

Based on the assessment of the  emerging dynamics and competitive  landscape, the Gold Loans market is expected to grow at  between 35% and 40% over the next three years. Moreover, as the market is currently under-penetrated, it is expected that the Gold Loans market will offer enough opportunities for portfolio expansion  and retain attractive margins for all existing specialised NBFCs,

banks and new entrants (Source: IMaCS Industry Report 2009). The branch expansion and marketing initiatives of various specialized NBFCs are anticipated to give a strong boost to the acceptability of Gold Loans and lead to further growth in the Gold Loans market. In addition, it is anticipated that the large public sector  banks in southern India will continue to be amongst the leading lenders, but considering the various regulatory and operational processes, it would be challenging for the banks to match the flexible service regime of the specialised NBFCs (Source: IMaCS Industry Report 2009). New NBFC entrants in the market are currently in a cautious preparatory mode to enter the Gold Loans market but it will take some time for these NBFCs to emerge as formidable competitors to

specialized existing NBFCs. This is because it will take time for these new NBFCs to build the requisite focus, infrastructure (valuers, lockers, etc,) and branch network (Source: IMaCS Industry Report 2009). Specialized NBFCs are expected to continue to hold their share of the Gold Loans market with their ability to provide superior and niche servicing capabilities to their exiting and future customers.

:

8MFY11 FY10 FY09 FY08
Income 1301.66 1089.38 620.40 368.64
PAT 291.48 227.58 97.72 63.60
EPS 7.84* 7.56 19.94 127.19
Equity 371.71 301.00 49.00 5.0

* denotes EPS in on new Base of 371.71 Lac shares. For Pre Issue Equity: Rs. 320.21 cr , EPS will come to 9.10

:

Company PAT* PAT-FY10 FV EPS PE BV P/BV
Manapurram 180.86 119.72 2 4.34 22.43 41.08 3.16
Muthoot Finance 291.48 227.58 10 9.10 11.72 35.33 4.53

P/E ratio for both companies are calculated by annualising 8/9 months FY11 EPS,

Muthoot Finance Analysis: The company is coming at Stellar Price. 3 Quarter for Muthoot Finance is over & Company will be coming with their Yearly Results soon. Just for sake of Calculation, let us consider Muthoot Finance will be able to just replicate the Earnings in 3 Quarter which it did in the first 2 Quarters, PAT will come out to be near 437.22 Crore Rs. for Full Year. One should note here that we are not even considering any growth in the PAT & the actual numbers could well exceed this conservative no. This will Result an EPS of 11.76 for FY11. At Upper Band of 175 Rs., P/E of about 14.9 which makes it a stellar Investment.

Manapuuram Gold should post an EPS of around 7 & at 130 Rs it is trading an P/E of 18.5

: The company has expanded its branch network from 551 branches to 1605 branches over the last three years ending March 31, 2010, resulting in a portfolio CAGR of 73%. During the same period, credit losses on gold loans have been minimal. In FY 2010, credit losses were at Rs. 0.67 crore or less than 0.01% of average managed advances, thus supporting a healthy return on equity (RoE) of 48%

Anchor Investors: Muthoot Finance has raised about Rs 130 crore (USD 30 million) from 11 cornerstone investors, the company said in exchange filings, ahead of the launch of its initial public offering to raise up to USD 203 million.

The company, which provides personal and business loans secured by gold, alloted 7.7 million shares, or 15% of the total offering of 51.5 million shares, to anchor investors at Rs 170 a share, it said in the filings late on Friday.

The anchor investors that bought shares in the pre-IPO sale include Citigroup Global Markets Mauritius, Abu Dhabi Investment Authority, Goldman Sachs India Fund and Baring India Private Equity Fund, the filings showed.

Verdict: Let us sum up the Factors that why we think Muthoot Finance makes a stellar investement:

  • Market leading position in the Gold Loan business with a strong presence in under-served rural and semiurban Market: People who are realising Microfinance Companies as next bet in India should give a thought on the Potential of this Company.
  • Strong brand name, track record, management expertise and Promoter support
  • High-quality customer service and short response time: NPA of under 0.5% make it a dream NBFC company.
  • Strong capital raising ability
  • In-house training capabilities to meet its branch expansion requirement
  • India’s Biggest Gold NBFC Company
  • Company Annual Growth Rate is above 50 % which is likely to remain above 50 % for next few years.

For Traders, Muthoot Finance is coming at a discounted price. With India Largest Gold NBFC Company, it will enjoy the best P/E in the Category. I feel it can be given a P/E of around 22-25. Grey Market Premium is around 35 Rs. I feel stock can List around 230-240 Rs. & can even hit 250 Rs on the Listing Day making it Ideal for a safe trading. Remembers Issue Size is Huge of around 900 Crore Rs. & Hence, People can get lot more share if they apply for a full lot.  Our recommendation for Muthoot Finance will be to go for the IPO for Flippers as well as Investors.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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