Muthoot Microfin IPO – Dates, Positives, Risks and Review

Muthoot Microfin IPO Details – Introduction

Muthoot Microfin is coming up with an IPO scheduled to open on December 18, 2023. Company provides micro-loans in rural regions in India.. This article provides insights into Muthoot Microfin IPO, including its dates, details, price band, GMP, positive aspects, risk factors, and provides a complete review and analysis.

Also Read: Should you invest in Balanced Advantage Funds in 2024 when markets are overvalued?

About Muthoot Microfin Limited

Founded in April 1992, Muthoot Microfin Limited is a subsidiary of Muthoot Pappachan Group. The company is a microfinance institution operating in India, focusing on providing micro-loans primarily to women in rural areas for income generation purposes.

As of March 31, 2023, it is the fifth-largest NBFC-MFI in India based on gross loan portfolio, and the third-largest in South India. The company holds the largest market share in Kerala and is a significant player in Tamil Nadu. Their gross loan portfolio as of September 30, 2023, amounted to ₹108,670.66 million. The business model aims to drive financial inclusion by serving customers from low-income groups. With 3.19 million active customers, the company operates through 1,340 branches in 339 districts across 18 states and union territories in India, employing 12,297 people. The branch network is strategically established in under-served rural markets with growth potential to ensure accessibility for customers, and branches are equipped with IT networks.

Muthoot Microfin IPO - Dates, Positives, Risks and Review

According to the MfinIndia report, the overall microfinance loan industry had a portfolio of Rs 3.5 lakh crores as of the end of May 2023.

Muthoot Microfin IPO Dates, Price Band and Size

IPO Date IPO Opens on December 18, 2023 and closes on December 20, 2023
IPO Listing Date December 26, 2023
Issue Type Book Built Issue IPO
Face Value Rs 10 per equity share
IPO Price band Rs 277 to Rs 291 per equity share
Lot Size 51 Shares
Listing at BSE and NSE
Total Issue Size Rs. 960 Crores
    Fresh issue     Rs. 760 Crores
    OFS     Rs. 200 Crores
Employee Discount Rs. 14 Per Share

Objects of the IPO

Muthoot Microfin IPO Size is Rs 960 Crores which contains both fresh issue and OFS.

#1 – Offer for Sale (OFS) for Rs 200 Crores – This goes to the selling shareholders and the company would not get any proceeds.

#2 – Fresh issue of Rs 760 Crores – These funds would be used for the following:

  • to undertake its existing business activities, and
  • to undertake the activities proposed to be funded from the Net Proceeds.
  • Further, the company expects to receive the benefits of listing the equity shares on the Stock Exchanges, including enhancing the brand image among existing and potential customers and creating a public market for the Equity Shares in India.

About Company Financials

Financial Year ending / Period ending (Amt in Crores)
Period Ended 31-Mar-21 31-Mar-22 31-Mar-23
Assets 4,183.85 5,591.46 8,529.20
Revenue 696.28 842.94 1,446.34
Profit After Tax 7.05 47.40 163.89
Net Worth 889.89 1,336.58 1,625.85
Reserves and Surplus 642.84 1,040.10 1,282.15
Total Borrowing 3,015.66 3,996.61 6,493.18

Muthoot Microfin IPO Price Valuation

  • The IPO price band is Rs 277 to 291 per share
  • P/E Ratio Analysis
    • If we consider the last year FY23 EPS of Rs 11.66, the P/E ratio works out to be 25x
    • If we consider last 3 years weighted EPS of Rs 7.25, the P/E ratio works out to be 40x
  • Comparison with listed peers
    • Spandana Spoorthy Financial Limited trading at P/E 551x (Highest)
    • Ujjivan Small Finance Bank Limited is trading at P/E of 9x (Lowest)
    • Industry average P/E is 94.8x
  • Hence, the IPO Price band at P/E of 25x to 40x is attractively priced

Positive Factors to invest in Muthoot Microfin IPO

Investing in the IPO of this company may be considered for several reasons:

  • Market Leadership and Presence: The company is the fifth-largest NBFC-MFI in India and holds a significant market share in South India, particularly in Kerala and Tamil Nadu. This market leadership suggests a strong position in the microfinance sector.
  • Association with Muthoot Pappachan Group: Being part of the Muthoot Pappachan Group, a well-established conglomerate with a history of over 50 years in financial services, provides the company with brand recall and operational benefits. This association also indicates a strong support system and potential synergies between the financial services of the group and the microfinance business.
  • Diversified Lending Products: The company offers a wide range of lending products, including income-generating loans, life betterment solutions, health and hygiene loans, and secured loans. This diverse product portfolio allows the company to cater to the various needs of rural households, contributing to revenue streams and risk mitigation.
  • Technological Integration: The company has embraced technology in its operations, including a proprietary application called “Mahila Mitra” for digital payments. The use of technology not only enhances customer service but also improves operational efficiency and risk management, as evidenced by the development of a unique credit score card in collaboration with Equifax.
  • Digital Transformation and Recognition: The company has received awards for its digital initiatives, showcasing its commitment to innovation and excellence in the financial services sector. The development of a Super App, integrating various products on a single platform, reflects a forward-looking approach to maximizing cross-selling opportunities.
  • Robust Risk Management: The company boasts a robust risk management framework leading to a healthy portfolio quality. This is crucial for the sustainability of the business, indicating prudent lending practices.
  • Strategic Growth Plans: The outlined strategies, such as geographical expansion, continued enhancement of information technology, leveraging the existing branch network, and diversifying sources of funds, demonstrate a clear roadmap for future growth and sustainability.
  • Experienced Management: The company is led by an experienced and professional management team, supported by strong corporate governance. This factor provides confidence to potential investors regarding the competence and stability of the leadership.
  • Diversified Sources of Capital: The company has access to diversified sources of capital, contributing to its financial strength and effective cost of funds.
  • Commitment to Social Welfare: The company emphasizes a rural-focused operation with a commitment to the health and social welfare of its customers, aligning with socially responsible business practices.

Negative or risk factors of investing In this IPO

  • OFS portion to selling share holders: The IPO objectives contain both OFS and fresh issue. OFS portion goes to selling shareholders and company would not benefit.
  • Customer Profile Risks: The microfinance industry in India, serving a specific category of customers, faces unique risks not associated with other lending forms. This could lead to increased non-performing assets, provisions, and write-offs, negatively impacting the company’s business, financial condition, and results of operations.
  • Interest Rate Vulnerability: The company’s business is vulnerable to interest rate risks. Volatility in interest rates may adversely affect net interest income and net interest margin, potentially impacting overall financial performance.
  • Government Enforcement Risk: The Managing Director has received summons from the Directorate of Enforcement, Ministry of Finance, Government of India. The outcome of this regulatory action is uncertain, and any adverse actions could have detrimental effects on the company’s business, operations, financial condition, and reputation.
  • Market Capitalization Concerns: The market metrics, such as market capitalization to revenue, market capitalization to tangible assets, and enterprise value to EBITDA, based on the Offer Price, may not accurately reflect the market price of the company upon listing or thereafter.
  • Record-Keeping Challenges: Incomplete historical record-keeping, including missing Board and Shareholders meeting minutes and certain unkept secretarial records, poses a risk. Legal proceedings or regulatory actions may arise in the future, impacting the company’s financial condition and reputation.
  • Financing Arrangement Restrictions: Certain conditions in financing arrangements may restrict the company’s ability to conduct business and operations as desired, posing operational challenges.
  • Reputation Risks: Concerns about the terms of loans provided by the company could negatively affect its reputation, potentially impacting the growth and market acceptance of its products and services.
  • Sustainability of Growth: The company may face challenges in sustaining the significant growth and relatively high profit after tax recorded in the Financial Year 2023 in the future.
  • Audit Report Observations: Audit reports for the Financial Years 2021, 2022, and 2023 contain an emphasis of matter paragraph and certain negative observations, indicating potential financial and operational concerns.
  • Negative Cash Flows: Negative cash flows from operating, investing, and financing activities in the past pose a financial risk that may affect liquidity and financial stability.
  • Investors should go through all risk factors indicated in Muthoot Microfin IPO RHP.

Muthoot Microfin IPO GMP

The Grey Market Premium (GMP) for Muthoot Microfin IPO is reported to be in the range of Rs 115 to 120. It’s important to note that the accuracy of GMP cannot be independently verified as these trades occur in the offline mode, making it challenging to obtain real-time and reliable information.

You may like: 10 Worst Performing Mutual Funds during 2013 to 2023

Muthoot Microfin IPO – Should you buy or not?

Investors should consider all pros and cons before assessing whether this IPO is good or bad for investment.

  • Investing in this Muthoot Microfin IPO presents an opportunity to tap into a leading player in India’s microfinance sector, showcasing market leadership and a strong presence in key regions. The company’s association with the well-established Muthoot Pappachan Group provides brand recall, marketing benefits, and potential synergies, enhancing its competitive position. Diversified lending products, technological integration, and a focus on digital transformation indicate adaptability and innovation in meeting the financial needs of low-income customers. With robust risk management, a strategic growth plan, and experienced leadership, the IPO offers potential for investors seeking exposure to the microfinance sector within a reputable business conglomerate.
  • However, investing in this IPO comes with several risk factors too. The microfinance industry’s unique customer profile may lead to increased non-performing assets, potentially affecting financial performance. Vulnerability to interest rate fluctuations poses a risk to net interest income. There are several other risk factors too indicated in risk factors section above.
  • The IPO is attractively priced.

Investors can invest in this IPO after considering all positive and risk factors.

Suresh KP

Leave a Reply

Your email address will not be published. Required fields are marked *