Muthoot Fin

Muthoot Finance, a systematically important non-deposit taking NBFC and India's largest gold loan company, is entering the debt capital market, second time this fiscal, with a public issue of secured non-convertible debentures (NCD) of face value Rs. 1,000 each on 22^nd December 2011 to raise Rs. 300 crore with an option to retain another Rs. 300 crore, taking the total fund raising to Rs. 600 crore. Previous fund-raising by the company in August this year was to the tune of Rs. 1,000 crore.

The issue, rated 'AA-/Stable' by Crisil and ICRA, indicating high safety for timely servicing of financial obligations carrying very low credit risk, closes on 7^th January 2012, with an option in company's hands to either close the issue earlier or extend the closing. The NCDs, to be listed on BSE, with one NCD comprising a trading lot, would be available only in the demat form with minimum application amount being fixed at Rs 5,000 and in multiples of Rs. 1,000 thereafter.  

Since bank financing has become an expensive route, post removal of priority sector status by RBI for NBFC lending by banks, the company is tapping the public debt market to meet its fund needs. Under the current issue, there are four different tenures being offered to investors - 2 years, 3 years, 5 years and 5.5 years, with effective yields ranging from 13% to 13.43% per annum:

* Will be redeemed at Rs. 2,000 per NCD i.e. NCD will double in 5.5 years

The highest effective yield is for NCDs with tenure of 5.5 years at 13.43 % per annum. For both 3 year and 5 year tenure NCDs, interest rate is same at 13.25%, leaving the choice in the investor's hands. Post-tax return of 9.16%, for an investor falling in the highest tax bracket of 30.9%, for a 3 year maturity, is quite an attractive return in the current macro scenario. The interest payable would be taxable (similar to bank FDs), although there is no tax deduction at source (TDS).

Muthoot Finance, India's largest gold loan company in terms of loan portfolio and branch network, has a gold loan portfolio of Rs. 20,767 crore as of 30^th September 2011, comprising more than 55 lakh gold loan accounts served through a network of 3,274 branches. For FY11, company earned total income of Rs. 2,316 crore and net profit of Rs. 494 crore on equity of Rs. 320 crore, with very low gross NPAs of 0.29%. Having made an IPO in May 2011, company's equity and networth have expanded to Rs. 372 crore and Rs. 2,613 crore respectively, as of 30^th September 2011. For first half of FY12, its total income rose to Rs. 2,013 crore and net profit to Rs. 406 crore. Thus, the company enjoys sound financial position along with a healthy balance sheet. Funds raised via the NCD issue will be used in regular financing activities, investments and to repay existing liabilities.

This NCD issue is attractive for those investors looking to park funds in fixed investment schemes as the interest rate, especially for a relatively shorter maturity of 3 years, is attractive. Those looking for diversification can subscribe to the issue for either 3 years at 13.25% p.a. interest or for 5.5 years at effective yield of 13.43%, so as to cap returns at the higher end, before interest rate cycle begins to ease out.