9% Muthoot Fincorp NCD Issue – Aug-22 – Should you invest?

Kerala based Muthoot Fincorp has come up with secured NCD bonds now. These NCDs open for subscription on 5th August, 2022. Muthoot Fincorp Limited is a leading NBFC company which has emerged as a prominent gold loan player in India. It offers interest rates are up to 8.35% and yield works out to be 9.09%. These NCD’s are issued in 7 different series and for 27 months to 96 month tenure. Investors can get fixed income, either monthly or on maturity depending on the option chosen. Should you invest in Muthoot Fincorp NCD’s of August, 2022? What are the risk factors one should consider before investing in such high risk NCDs?

Also Read: 5 Aggressive Hybrid Funds to invest in 2022

About Muthoot Fincorp Limited

They are a non-deposit taking systemically important NBFC in India.  The company emerged as a prominent gold loan player in the Indian market.

From FY 2014 to FY 2022, the company has shown a significant increase in its gold loan portfolio at a CAGR of 15%.

Muthoot Fincorp NCD Aug-2022 Issue - Review

Muthoot Fincorp NCD – Aug-22 Issue Details

Muthoot Fincorp NCD subscription opened on Friday, 5th August, 2022 and closes on Thursday, 1st September, 2022. These are issued on first come first serve basis and the issue can get closed earlier if these are fully subscribed.

NCD’s are available in 7 options. It offers NCD bonds for 27 months to 96 month tenure.

Coupon interest rates are between 8% to 8.35%. The yield ranges between 8.29% to 9.09%.

They are issuing secured redeemable NCDs as part of this issue.

Interest payable monthly or 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 250 Crores with an option to retain over subscription up to Rs 250 Crores totaling to Rs 500 Crores.

SMC Capitals Limited is the lead manager for this NCD issue.

Muthoot Fincorp NCD Aug-22 Prospectus

What are Muthoot Fincorp NCD Interest Rates?

Muthoot Fincorp NCD Interest Rates - Aug-2022 issue

What are the Muthoot Fincorp NCD ratings?

These secured NCD’s are rated as A+ Stable by CRISIL which indicate that instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations and carry a low credit risk.

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-2019 – 372.6 Crores

Year ended Mar-2020 – 257.9 Crores

Year ended Mar-2021 – 397.2 Crores

Year ended Mar-2022 – 412.55 Crores

Why to invest in Muthoot Fincorp NCD’s?

1) These NCDs offer high interest rates, which range between 8% to 8.35% and yield between 8.3% to 9.09%.

2) These are secured NCDs. If the company gets shut down or get into financial crisis 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 secured NCDs.

3) Company is earning consistent margins in the last few years. This indicates that this company has ability to consistently pay the interest amount for its NCD holders or payments to its creditors.

Why not to invest in Muthoot Fincorp NCD?

Here are the risk factors of investing in these non-convertible debenture bonds.

1) Covid-19 pandemic is still uncertain and can impact company operations and financial condition in the future too.

2) Scheduled commercial banks and payment banks have been directed not to open and maintain current accounts for customers who have availed credit facilities in the form of cash credit (CC) /overdraft (OD) from the banking system. Implementation of the aforesaid direction without providing an alternate mechanism for financial institutions transacting with scheduled commercial banks and payment banks to withdraw and deposit cash may adversely affect its business.

3) Company credit profile may take an impact because of real estate property acquisition since such acquisition brings real estate risks.

4) Company business requires substantial capital, any disruption in funding sources can have an impact on company business.

5) Company financial performance is particularly vulnerable to interest rate risk.

6) Refer prospectus for complete risk factors.

Also Read: Best Dividend Yield Mutual Funds for 2022

Should you invest in Muthoot Fincorp NCD Aug-22 issue?

Muthoot Fincorp offers secured NCDs in August, 2022 issue. These NCDs offers high interest rate up to 8.35% and yield up to 9.09%. These NCDs have good credit rating of A+ by CRISIL.

On the other side, one should understand the risks involved in investing in NCD bonds of NBFC companies. Two classic examples – DHFL has defaulted NCD payments earlier and SREI has been delaying repayment of NCD capital and interest payments.

High-risk investors can invest in these NCD bonds after understanding all these risk factors.

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Suresh KP

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