10.75% Muthoottu Mini Financiers NCD Aug 2019 Review

Muthoottu Mini Financiers NCD Aug 2019 Review

Muthoottu Mini Financiers NCD for August 2019 would open for subscription on 7th August, 2019. It is issuing secured NCD’s now. The yield is as high as 10.75% per annum. It is offering NCDs of 480 days, 24  months, 36 months and 60 months tenure. Currently banks are offering low interest rates between 5% to 8% and investors are looking high interest rate NCD’s. However, the recent NBFC crisis with delayed NCD re-payments and defaulting on repayment of commercial papers for mutual fund schemes. Should you still invest in  Muthoottu Mini Financiers NCD of August 2019?

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About  Muthoottu Mini Financiers Limited


They are a non-deposit taking systemically important NBFC in the gold loan sector lending money against the pledge of household gold jewelry in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Haryana, Maharashtra, Delhi and Goa and the union territory of Puducherry. They have also recently forayed into a microfinance loan segment in financial year 2017 wherein they provide unsecured loans to a joint liability group of women customers (minimum of 5 persons) who require funds to carry out their business activities through few of their branches in the state of Kerala. Their Gold Loan portfolio as on September 30, 2018, March 31, 2018, March 31, 2017 and March 31, 2016, comprises of 96.35%, 95.31%, 99.01% and 99.60% of their total loans and advances as on such specific dates. They, as on September 30, 2018, has a network of 767 branches spread in the states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Haryana, Maharashtra, Delhi and Goa and the union territory of Puducherry and they employ 2,905 persons in their business operations.

Muthoottu Mini Financiers NCD August 2019 Issue details


Muthoottu Mini Financiers is issuing secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 100 Crores with an option to retain another Rs 50 Crores over subscription totaling to Rs 150 Crores. It comes with 8 different options, which contains 480 days, 24 months, 36 months and 60 months tenure NCDs.

About Muthoottu Mini Financiers August 2019 Secured NCD


They are offering secured NCD’s now in August 2019. The NCDs would constitute secured and senior obligations of the Company and shall be first ranking pari passu with the existing secured creditors on all loans and advances/ book debts/ receivables, both present and future of Company equal to the value one time of the debentures outstanding plus interest accrued thereon, and subject to any obligations under applicable statutory and/or regulatory requirements.

Features of Muthoottu Mini Financiers NCD of August 2019


NCD Issue start date: 7-August-2019

NCD Issue closes on: 5-September-2019

NCD’s are available in 8 different options.

The interest on these NCDs are payable monthly, yearly and on maturity depending on the NCD option chosen.

The face value of the NCD bond is Rs 1,000.

Minimum investment is for 10 bonds means, you need to invest for a minimum of Rs 10,000. Beyond this you can invest in multiples of 1 bond.

These NCD bonds would be listed on BSE. Hence, these are liquid investments.

Non-resident Indians (NRI’s) cannot invest in these NCD’s.

CARE has rated these NCDs as BBB-; Stable which indicate that instruments with this rating are considered to have a moderate degree of safety regarding timely servicing of financial obligations and carry a moderate credit risk.

Vivro Financial Services is the lead manager for this issue.

You can download Prospectus of Muthoottu Mini Financiers August 2019 NCD issue details here.

Here are the interest rates on the August 2019 NCD’s of Muthoottu Mini Financiers


Muthoottu Mini Financiers Aug 2019 NCD Interest and Yield data

What is the issue break-up?


There is no specific allocation done for Institutional or non institutional portion. Depending on the applications received, it would go with the allotment of the NCDs.

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How is the company doing in terms of Financials?


Here are the financials in the last 3 years.

1) Its revenues have fallen from Rs 435.4 Crores in FY2017 to Rs 298.1 Crores in FY2019.

2) It incurred loss of Rs 81 Crores in FY2017 and earned profit of Rs 20.95 Crores in FY2019.

3) Its current gold loan business is around 93.3% of its overall business for the year FY2019.

3) Gross NPA is at 2.16% for the year FY2019. Net NPA is at Rs 1.39% for similar period.

Why to invest in these NCDs?


1) This is a Leading NBFC company in India.

2) Attractive interest rates where one can get 10.75% yield.

3) It is issuing secured NCDs which are safe to invest compared to other unsecured NCDs.

Why not to invest in Muthoottu Mini Financiers August 2019 NCD?


1) Low credit rating from IND Ratings of IND BBB-/Stable.

2) Its revenues have fallen in the last 3 years. If company revenues are falling, there is less growth in the company and it is high risk for investors investing in such company NCDs.

3) They are in receipt of a show cause notice issued by the RBI. Any adverse action taken against the company or penalty imposed on the company by the RBI could adversely affect their business and operations.

4) They have been subject to an inspection by the RBI and any adverse action taken could affect their business and operations.

5) They are subject to certain legal proceedings and any adverse decision in such proceedings may have a material adverse effect on their business and results of operations.

6) They do not own the trademark and they have been authorized to use by one of their Group Companies. Termination or withdrawal on unfavorable terms of this authorization to use or any negative impact on the ‘Muthoottu Mini’ brand may adversely affect their business,  reputation, goodwill, financial condition and results of operations.

7) Their business is capital intensive and any disruption or restrictions on raising financial resources would have a material adverse effect on their liquidity and financial condition.

8) Their financial performance is primarily dependent on interest rate risk. If they are unable to manage interest rate risk in the future it could have an adverse effect on their net interest margin, thereby adversely affecting the business and financial condition of the company.

9) Volatility in the market price of gold may adversely affect their financial condition, cash flows and results of operations.

10) You can refer all risk factors in the Final prospectus of the company.

How to apply these NCDs?


You can apply these NCDs in demat form only. If you have demat account, you can login to your account and go to IPO/NFO/NCD section and apply for the same. The process of applying NCD would be through ASBA (Your amount would be blocked initially and upon allotment, your amount would be deducted and NCD unit allotment would be done, else your amount would be unblocked) You can reach out to any of the lead managers websites to know more details on how to apply them.

How Muthoottu Mini Financiers August 2019 NCD are taxed?


Since you need to apply through the demat form only, there would not be any TDS deduction on the interest paid on these NCD’s. It is immaterial whether the company would deduct TDS or not, one has to declare the NCD interest as income in their income tax returns and pay income tax based on the individual tax bracket.

When this Muthoottu Mini Financiers NCD of 2019 would get listed on BSE?


These JM Financial Products Limited NCDs of August, 2019 would get listed after 6 working days from the date of closure.

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Should you invest in Muthoottu Mini Financiers NCD of August 2019?


Few thoughts:

1) Though this company is issuing secured NCDs, the company revenues are falling year on year. Means in future company can incur high cost and lesser revenues and can turn to loss making company. In such case there would be a delay in repayment of interest to NCD investors.

2) We are seeing NBFC companies delaying re-payments to the existing NCD holders. This company is still offering higher interest rates for these NCDs as NBFC companies are finding difficult to get credit/loans in India. NBFC Sector is a high risk sector now for any investments.

Considering these factors, I would advise investors to stay away from such high risk NCDs now. You can invest in some of the large cap funds Mutual Funds that can provide high returns though not guaranteed.

Readers, do you feel these NCDs are worth investing?

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Suresh KP

Muthoottu Mini Financiers NCD August 2019 Issue Review

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