Muthoot Microfin is the fifth largest
NBFC-microfinance company in terms of gross loan portfolio. The company is the
part of the Muthoot Pappachan Group, a business conglomerate with presence
across financial services, automotive, hospitality, real estate, information
technology infrastructure, precious metals and alternate energy sectors. The
group relationship provides the company with brand recall and significant
marketing and operational benefits. The target customer segment of the Muthoot
Pappachan Group as well as the company itself is low-income customers, providing
significant business synergies.
The company provides micro-loans to women
customers primarily for income generation purposes with a focus on rural
regions of India. The loan products comprise (i) group loans for livelihood
solutions such as income generating loans (ii) life betterment solutions
including mobile phones loans, solar lighting product loans and household
appliances product loans (iii) health and hygiene loans such as sanitation
improvement loans and (iv) secured loans in the form of gold loans and Muthoot Small & Growing Business (MSGB) loans.
Muthoot Microfin has a customer base of
31.9 lakh active customers, who are serviced by 12297 employees across 1340
branches in 339 districts in 18 states and union territories in India. The gross loan portfolio of the company has increased at a
strong pace of 46% yoy to Rs 10867 crore end September 2023.
The company has significantly implemented
the use of technology across microfinance operations developed through in-house
information technology team helping to maintain high levels of customer
service, enhancing operational efficiency and creating competitive advantages
for organization. Key technology related aims include increasing digital
penetration, reducing risks associated with cash transactions, improving risk
management and underwriting processes, increasing operational efficiency,
improving customer analytics and simplifying sourcing. Leveraging on technology
initiatives, the company has achieved quicker turn-around times for loan
approval and disbursement processes.
Muthoot Microfin has developed a unique
credit score card along with Equifax to evaluate the creditworthiness of
customers by assigning individual credit scores to customers that helps to strategically allocate more capital to low-risk customers. The company has launched a
proprietary application, called ‘Mahila
Mitra‘, in 2021, which facilitates
digital payment methods leading to an increase in digital collection to 25.47% of repayments in H1FY2024.
The company is in the process of developing
a Super App along with the Muthoot Pappachan Group‘s products and databases on a
single platform, allowing customers to access all the Group‘s
loan offerings on a single platform, thereby maximizing cross-selling opportunities.
The strong risk management framework,
customer selection methodologies and regular end use and payment monitoring
have resulted in healthy portfolio quality indicators such as high collection
efficiency, stable PAR and low rates of gross NPAs and net NPAs. The collection
efficiency was 98.89% in the six months ending September 2023. Further, the
gross NPA ratio was 2.37% and net NPA ratio was 0.33% end September 2023.
The company has a well-diversified funding
profile that underpins liquidity management system, credit rating and brand
equity. It has received an upgraded credit rating of A+/Stable by CRISIL in
October 2022. The average effective cost of borrowings has declined from 11.08%
for FY2021 to 10.94% for FY2023.
The capital adequacy ratio stands at 20.46%
of risk-weighted assets end September 2023 which is above the requirement of
15%.
The
Offer and the Objects
The initial public offer (IPO)
consists of fresh issue to raise Rs 760 crore through issuance of 2.74 crore
equity shares at the lower band of Rs 277 per share (face value Rs 10 per
share) and 2.61 crore equity shares at the upper band of Rs 291 per share.
The issue also consists of Offer for
Sale (OFS) to raise Rs 200 crore through issuance of 0.69 crore equity shares
at upper price band. The corporate promoter Muthoot Fincorp is not
participating in the OFS, while the individual promoters intend to raise Rs 150
crore. Further, the investor Greater Pacific Capital WIV also intends to raise
Rs 50 crore through OFS. The promoter shareholding in the company would decline
to 55.5% post- IPO from 69.1% pre-IPO.
The issue is to be made through the
book-building process and will open on 18 December 2023 and will close on 20
December 2023.
The equity shares worth Rs 10 crore
are reserved for employees with a discount of Rs 14 per share.
The company proposes to utilize the
Net Proceeds from the Fresh Issue towards augmenting the capital base to meet
future capital requirements, arising out of the growth of business and assets.
The company expects to receive the benefits of listing the Equity Shares on the
Stock Exchanges, including to enhance brand image among existing and potential
customers and creation of a public market for the Equity Shares in India.
Strengths
Muthoot Microfin is the fifth largest
NBFC-MFI in India in terms of gross loan portfolio. The company is also the
third largest amongst NBFC-MFIs in South India, the largest in Kerala and a key
player in Tamil Nadu.
The company has a well-diversified portfolio
across 339 districts in 18 states and union territories in India. The company
has expanded operations in North, East and West India over the past five years,
diversifying customer base and loan portfolio.
Microfinance is a business model which
helps in driving financial inclusion, as the customers belong to low-income
groups.
The company has a history of serving rural
markets with high growth potential in the microfinance segment and has
maintained a track record of financial performance and operational efficiency.
The company has developed strong digital
capabilities delivering superior services
to rural customers.
The relationship with the Muthoot Pappachan
Group serving 87 lakh customers with a history of over 50 years in the
financial services and provides significant marketing and operational benefits.
Group branches and expertise are
utilized in specific areas of operations including cash management, gold
assessment and storage etc.
The company has implemented well-defined key risk management policies which
primarily focus on addressing credit risk, operational risk and financial risk.
The company has access to diversified sources of capital and effective
cost of funds.
Weaknesses
Microfinance customers
generally have limited sources of income, savings and credit histories. It is
difficult to consistently carry out credit risk analyses on customers. Such
customers may pose a higher risk of default as compared to customers with
greater financial resources and established credit histories.
Microfinance loans are primarily unsecured
loans to customers in a high-risk category. They rely on non-traditional
guarantee mechanisms rather than collateral.
The company does not own the ‘Muthoot Pappachan‘ and the ‘Muthoot Microfin‘ trademarks and the logos and the
license to use them is valid for a period of 10 years from January 2017.
The company has added 44% of its existing branches,
42% of customers and 54% of loan book in last two-and-half years, so
significant portion of new branches, customers and loan book is yet to
stabilize.
The gross loan portfolio in top three
states, Kerala, Karnataka and Tamil Nadu, together accounted for 51.36% of
total gross loan portfolio and any adverse developments in these states may have an adverse effect
on business.
Competition
from other MFIs, banks and financial institutions, as well as state-sponsored
social programs, may adversely affect the business.
There are challenges in operating rural-focused business model such as high
cost of reaching to customers, lack of financial awareness, vulnerability of
customers household income and high proportion of cash collections etc.
Valuation
EPS on
post-issue equity for TTM ended September 2023 works out to Rs 20.9. At the
price band of Rs 277 to Rs 291, P/E works out to 13.2 to 13.9 times of EPS for
TTM ended September 2023.
Post-issue,
the book value (BV) will be Rs 152.9, while the adjusted BV (ABV) net of net
NPAs works out to Rs 148.4 per share at the upper price band. The scrip is
being offered at price to ABV multiple of 2.0 times at the upper price band.
Among
peer NBFC-MFIs, CreditAccess Grameen is trading at P/ ABV multiple of 4.9 times
(consolidated basis), Fusion Micro
Finance 2.4 times, Spandana Sphoorty Financial at 2.3 times (consolidated basis) and Satin Creditcare Network at 1.4 times (consolidated basis).
In
terms of PE, CreditAccess Grameen is trading at 23.2 times its consolidated EPS
for TTM ended September 2023, Fusion Micro Finance at 12.9 times, Spandana
Sphoorty Financial at 17.8 times (consolidated
basis) and
Satin Creditcare Network at 7.0 times(consolidated
basis).
RoA of
the company was strong at 3.3% for TTM ended September 2023. The peer MFIs have
also exhibited strong RoA at 5.1% for CreditAccess Grameen for TTM ended
September 2023 (consolidated basis), 4.6% for Fusion
Micro Finance, 3.8% for Spandana Sphoorty Financial (consolidated basis) and 3.8% for Satin Creditcare Network(consolidated basis).
RoE of
the company was at 13.7% for TTM ended September 2023. RoE of CreditAccess
Grameen was healthy at 20.8% for TTM ended September 2023 (consolidated basis), Fusion Micro Finance at 18.0%, Spandana
Sphoorty Financial at 12.5% (consolidated
basis) and
Satin Creditcare Network at 18.5% (consolidated
basis).
The
company has maintained healthy asset quality with Net NPA ratio at 0.33%
compared with 0.24% for CreditAccess Grameen, 0.65% for Fusion Micro Finance,
0.42% for Spandana Sphoorty Financial and 1.89% for Satin Creditcare Network.
AUM of
the company has surged 46% year on year to Rs 10867 crore end September 2023.
The AUM of CreditAccess Grameen has moved up 36% to Rs 22488 crore, Fusion
Micro Finance 25% to Rs 10026 crore, Spandana Sphoorty Financial 69% to Rs 9784
crore and Satin Creditcare Network 39% to Rs 8894 crore.
The net
interest margin (NIM) of the company was healthy at 12.4% for H1FY2024. The NIM
of CreditAccess Grameen was at 13.1%, Fusion Micro Finance at 11.0%, Spandana
Sphoorty Financial at 13.0% and Satin Creditcare Network at 12.8%.
Muthoot Microfin : Issue
highlights
|
For Fresh Issue Offer size (in no
of shares crore)
|
- On lower price band
|
2.74
|
- On upper price band
|
2.61
|
Offer size (in Rs crore)
|
760.00
|
For Offer for Sale Offer size (in
no of share crore)
|
- On lower price band
|
0.72
|
- On upper price band
|
0.69
|
Offer size (in Rs crore)
|
200.00
|
Price band (Rs)
|
277-291
|
Minimum Bid Lot (in no. of shares
)
|
51
|
Post issue capital (Rs crore)
|
|
- On lower price band
|
171.79
|
- On upper price band
|
170.47
|
Post-issue promoter & Group
shareholding (%)
|
55.5
|
Issue open date
|
18-12-2023
|
Issue closed date
|
20-12-2023
|
Listing
|
BSE, NSE
|
Rating
|
45/100
|
Muthoot Microfin:
Financials
|
|
2103 (12)
|
2203 (12)
|
2303 (12)
|
2209 (6)
|
2309 (6)
|
Income from operations
|
623.04
|
729.49
|
1291.57
|
563.12
|
914.11
|
Other Income
|
73.25
|
113.45
|
154.77
|
51.85
|
133.13
|
Total Income
|
696.28
|
842.94
|
1446.34
|
614.96
|
1047.24
|
Interest Expenses
|
299.33
|
340.16
|
549.01
|
226.08
|
415.33
|
Other expenses
|
236.84
|
306.13
|
434.54
|
196.59
|
278.10
|
Gross profit
|
160.11
|
196.66
|
462.79
|
192.30
|
353.82
|
Depreciation
|
18.83
|
20.78
|
26.61
|
12.21
|
16.46
|
Provisions
|
132.22
|
111.15
|
223.32
|
163.32
|
62.75
|
PBT Before EO
|
9.05
|
64.72
|
212.87
|
16.76
|
274.61
|
EO
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT after EO
|
9.05
|
64.72
|
212.87
|
16.76
|
274.61
|
Provision for tax
|
2.00
|
17.32
|
48.98
|
4.30
|
69.35
|
PAT
|
7.05
|
47.40
|
163.89
|
12.47
|
205.26
|
EPS*(Rs)
|
0.4
|
2.8
|
9.6
|
1.5
|
24.1
|
Adj BV (Rs)
|
68.5
|
90.5
|
109.8
|
96.5
|
126.0
|
*EPS annualised on
post issue equity capital of Rs 170.47 crore of face value of Rs 10 each
Figures in Rs crore
Source: Muthoot Microfin Issue Prospectus
|
|