9.4% Muthoot Fincorp NCD Feb 2021 Issue Opens – Should you invest?
Muthoot Fincorp has come up with secured and unsecured NCD bonds Issue that has opened for subscription on 18th February, 2021. Muthoot Fincorp Limited is leading NBFC company in India. Muthoot Fincorp offers interest rates are up to 9.4%. These bonds are issued for 27 months to 72 months tenure. Investors can get fixed income, either monthly, yearly or on maturity depending on the option chosen. Should you invest in Muthoot Fincorp NCDs of February, 2021? What are the risk factors one should consider before investing in such high risk NCDs?
About Muthoot Fincorp Limited
They are, a non-deposit taking systemically important NBFC in India. The company emerged as a prominent gold loan player with 75% growth in its gold loan portfolio to Rs 39,700 lakhs in FY 2011. From FY 2014 to FY 2019, the company has shown a significant increase in its gold loan portfolio at a compound annual growth of around 13%. The personal and business loans secured by gold jewelry and ornaments offered by the company are structured to serve the business and personal purposes of individuals who do not have ready or timely access to formal credit or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements.
Features of Muthoot Fincorp NCD February, 2021
Issue start date: 18-Feb-2021
Issue end date: 9-Mar-2021
NCD’s are available in 9 options. It offers NCD bonds for 27 months, 38 months, 60 months and 72 months tenure.
Coupon interest rates are between 8.25% to 9.4%.
They are issuing both secured redeemable NCDs and unsecured NCDs.
Interest payable monthly, yearly and on maturity depending on the option chosen by the NCD investor.
The face value of the NCD bond is Rs 1000.
Minimum investment is for the 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.
NRI’s cannot apply to this NCD subscription.
The base issue size is Rs 150 Crores with an option to retain over subscription up to Rs 150 Crores totaling to Rs 300 Crores.
This NCD issue security symbol is MFINCORP9.
SMC Capitals Limited is the lead manager for the issue.
Muthoot Fincorp NCD Interest Rates
What are the credit ratings for these NCDs?
The Secured NCDs have been rated as A/(Stable) by CRISIL indicate that instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations and carry lowest credit risk. One should understand about credit ratings for fixed income options to asses the risk of investing in such options.
When these NCD bonds would be listed on stock exchanges?
The NCDs are proposed to be listed on BSE. The NCDs shall be listed within 6 working days from the date of the issue closure.
How is the company doing in terms of profits?
Its consolidated profits are as below:
Year ended Mar-2018 – Rs 119.8 Crores
Year ended Mar-2019 – Rs 372.6 Crores
Year ended Mar-2020 – 257.9 Crores
Why to invest in these NCDs of Muthoot Fincorp?
1) The company is earning consistent margins in the last few years. This indicates that this company has ability to consistently pay the interest rates for its creditors or NCD holders.
3) These NCDs offer attractive interest rates where investors can get interest up to 9.4% per annum.
4) It issues both secured and unsecured NCDs. Regd secured NCDs in case of any non performance of the company and the company gets closed for some reason, NCD investors would get preference in repayment of capital along with interest as those backed up by assets of the company. Hence it is safe to invest in such secured NCD options. One can ignore unsecured NCDs.
Why not to invest in these bonds?
Here are the risk factors of investing in these bonds.
1) The Spread of COVID-19 pandemic and the consequent nationwide lockdown to impact its operations and financial condition.
2) The Company’s credit profile may take an impact because of real estate property acquisition, since such acquisitions brings real estate sector risks.
3) Its business requires substantial capital, and any disruption in funding sources would have a material adverse effect on its liquidity and financial condition.
4) Any instructions by RBI or other regulatory authority in India directing the Company to stop the use of its premises/ branches or officials for the operations of its Group entities could materially and adversely affect its business and impact its future financial performance.
5) Its financial performance is particularly vulnerable to interest rate risk. If we fail to adequately manage its interest rate risk in the future it could have an adverse effect on its net interest margin, thereby adversely affecting its business and financial condition.
6) The Company is involved in certain legal proceedings for non-registration under certain State legislations in India relating to “money lending” activities. Any unfavorable outcome of such proceedings and the imposition of any additional restrictive statutory and/or regulatory requirements may adversely affect its goodwill, business prospects and results of operations.
7) The Company has been subject to RBI inspections and any adverse action taken could affect the business and operations of the Company.
8) Refer prospectus for complete risk factors.
Also Read: Safe Investments with high returns in India
Should you invest in Muthoot Fincorp NCD?
We have given our views earlier, but let me reiterate again.
1) Banks are reducing the interest rates in the past few quarters. Muthoot Fincorp NCDs are rated as A/(Stable) and offers high interest rates up to 9.4%.
2) One should not forget about NBFC crisis that started 3 years back. Your interest payment or repayment of capital might get delayed if invested in the NBFC companies.
3) Don’t put your hard earned money in single company NCD bonds. Always diversify your portfolio by investing in multiple investment options.
4) If you are a high risk investor and willing to consider all the risks indicated above, you can invest in secured NCDs. Stay away from un-secured NCDs. I would re-iterate again that these are high risk, hence invest only a small portion in such investment options.
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