Muthoot Fin
Muthoot Finance is entering the capital market on 18th April 2011 with a fresh issue of 5.15 crore equity shares of Rs.10 each, in the price band of Rs. 160 to Rs. 175 per share, aiming to raise Rs. 824-901 crore, based on discovered price. The issue, constituting 13.85% of the post-issue paid up capital of the company, closes on 20th April for QIB bidders and on 21st April for retail and HNI investors. The company had, on cover page of its RHP, mentioned that a discount of upto 10% of issue price may be offered to retail investors. However, absence of any such announcement is a little disappointing and back tracking on a move, which would have benefitted thousands of retail investors.
The company has failed in disclosing 12 litigations against itself and its group companies and 79 litigations initiated by the company. How come so many litigations have been left out? This leaves poor diligence on part of BRLM as also on part of the company. With total of 7,075 litigations pending by and against the company, a lot of efforts, time and cost will be spent on fighting or defending them. Also, it seems that BRLM and company have issued a corrigendum only after one of the litigant against the company, wrote to all Lead Managers associated with the IPO, as also to SEBI. Does this cover all the litigations as still some criminal cases are talked in the circles of the company?
The company, a systematically important non-deposit taking NBFC (NBFC-ND-SI), is the largest gold financing company with a market share of 19.5% in FY10 in India's Rs. 38,000 crore organised gold loans market, operating 2,611 branches in 25 Indian states and union territories, of which 1,753 are located in South. With 15,664 employees, the company had gross loan portfolio of Rs. 13,004 crore, as on 30-Nov-2010, of which approximately 75% was from South India due to its early mover advantage and strong brand name.
With a base of 41 lakh customer, average ticket size of loan disbursement is Rs. 31,500 and average duration of about 5 months. During 8 months ended 30-Nov-2010, company charged average annualised interest, at the rate of 18.92% on its gold loans, earning interest income of Rs. 1,289 crore, as against Rs. 1,077 crore interest earned in FY10. Net profit for 8 months ended 30-Nov-2010 was higher at Rs. 291 crore vis-a-vis Rs. 229 crore in FY10, resulting in eight monthly EPS of Rs. 9.30, on equity of Rs. 320 crore (as on 30-11-11). Net NPAs stood at Rs. 41 crore amounting to 0.42% of net retail loans while NIMs were high at 10.4% with RoA at 4.3% (annualised) for 8mFY11.
The company's networth, as on 30-Nov-2010, stood at Rs. 1,131 crore while its capital adequacy ratio at 15.06% is just a tad above RBI's revised norms of 15% CRAR requirement wef 31-Mar-11. The IPO proceeds will augment company's Tier I capital, thereby increasing its lending capacity as well as facilitating raising additional Tier II capital. Post-IPO, equity will expand to Rs. 371.71 crore and networth to Rs. 2,033 crore (assuming IPO at upper end of price band), thereby easing pressure on CRAR. Promoter holding will reduce from present 93% to 80.12% while 4 PEs (Baring, Kotak, Matrix and Wellcome) will collectively hold 6.03%, post-listing.
As of 30-Nov-2010, company had raised debt mainly through a mix of private placement of non-convertible debentures with retail investors (Rs. 3,364 crore), bank borrowings (Rs. 4,709 crore) and securitization of loans (Rs. 3,246 crore). Thus, it was able to enjoy a higher leverage of 8.6 times, enabling higher business activity.
Although not yet implemented, going forward, the company plans to pay royalty for using the 'Muthoot' trademark to its promoters at the rate of 1% of annual income, subject to maximum of 3% of PBT, as per agreement between the company and promoters. For FY11, this quantifies to an annual outgo of about Rs. 20 crore, which is not in good light, and may set a wrong precedence for India Inc.
At the upper end of the price band at Rs. 175, share is being offered at a PE multiple of 12.8x based on expected FY11 EPS of around Rs.14 and equity of Rs. 320 crore (as on 31-Mar-11). On estimated post-money BVPS of Rs. 60 per share (including FY11 EPS), the PBV multiple works out to Rs. 2.92x. These valuation are bit expensive when compared with listed Manappuram General Finance.
Manappuram General, with 1,800 branches and gold loan portfolio of Rs. 6,500 crore, reported 9mFY11 PAT of Rs. 181 crore on topline of Rs. 759 crore, indicating EPS of Rs. 5.02 for nine months period. In Nov-2010, it had raised Rs. 1,000 crore via QIP which will sharply improve Q4FY11 performance, leading to expected FY11 EPS of close to Rs. 8 and BVPS of about Rs. 49, as of 31-Mar-11. Thus, at CMP of 127, Manappuram is trading at PE of 16x and PBV of 2.6x.
Considering these, it is expected that promoters will be careful and transparent in dealing with public shareholders. Issue may give a 10% gain over the upper band of the issue price of 175.