Muthoot Finance Limited’s IPO which opens on 18th April 2010 is eagerly awaited by all investors looking to invest in a quality IPO.
Muthoot Finance has been rated 4/5 by CRISIL which indicates “Above Average” fundamentals.
Muthoot Finance is the largest gold financing company in India in terms of loan portfolio. Muthoot Finance provides personal and business loans secured by gold jewellery, or Gold Loans, primarily to individuals who possess gold jewellery but could not access formal credit within a reasonable time, or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements. Muthoot Finance‘s Gold Loan portfolio as of March 31, 2010 comprised approximately 2.8 million loan accounts in India that it serviced through 1,605 branches across 20 states and two union territories in India. According to the IMaCS Industry Report 2009, as of March 31, 2010
Muthoot Finance‘s branch network was the largest among gold loan NBFCs in India. Muthoot Finance has since increased its branch network to 1,921 branches as of August 31, 2010, and used its branch network to serve an average of 53,989 customers per day in the month of August 2010. As of August 31, 2010, Muthoot Finance employed 12,220 persons in its’ operations.
| Muthoot Finance’s Weighted average Earnings per Share (“EPS”) (Basic and Diluted) | ||||
| Financial Period | Basic and Diluted EPS (Rs.) | Weight | ||
| Financial Year 2008 | 2.57 | 1 | ||
| Financial Year 2009 | 3.49 | 2 | ||
| Financial Year 2010 | 7.59 | 3 | ||
| Weighted Average | 5.39 | |||
| Notes: | ||||
| The figures disclosed above are based on the restated financial statements of the Company. | ||||
Muthoot Finance‘s customers are typically small businessmen,vendors, traders, farmers and salaried individuals, who for reasons of convenience, accessibility or necessity, avail of its credit facilities by pledging their gold jewellery rather than by taking loans from banks and other financial institutions. Muthoot Finance provides retail loan products, primarily comprising Gold Loans. Muthoot Finance also disburses other loans, including those secured by Muthoot Gold Bonds. Muthoot Finance‘s Gold Loans have a maximum 12 month term. Muthoot Finance‘s average disbursed Gold Loan amount outstanding was Rs.26,183.0 per loan account as of March 31, 2010. In the year ended March 31, 2010, Muthoot Finance‘s retail loan portfolio earned, on average, 1.67% per month, or 19.94% per annum.
| Muthoot Finance’s Weighted average Return on Net Worth (“RoNW”)* | |||
| Financial Period | RoNW (%) | Weight | |
| Financial Year 2008 | 29.59% | 1 | |
| Financial Year 2009 | 27.08% | 2 | |
| Financial Year 2010 | 39.12% | 3 | |
| Weighted Average | 33.52% | ||
| Notes: | |||
| *The RoNW has been computed by dividing the net profit/(loss) after tax, as restated, by the Net Worth | |||
As of March 31, 2008, 2009 and 2010, Muthoot Finance‘s portfolio of outstanding gross Gold Loans under management was Rs.21,790.1 million, Rs.33,000.7 million and Rs.73,417.3 million, respectively, and approximately 30.1 tons, 38.9 tons and 65.5 tons, respectively, of gold jewellery was held by us as security for our Gold Loans.
Muthoot Finance has been growing at a scorching pace.
In the years ended March 31, 2008, 2009 and 2010, Muthoot Finance‘s total income was Rs.3,686.4 million Rs.6,204.0 million and Rs.10,893.7 million, respectively, demonstrating an annual growth rate of 57.56%, 68.29% and 75.59%, respectively.
Muthoot Finance‘s profit after tax in the years ended March 31, 2008, 2009 and 2010 was Rs.636.0 million, Rs.977.2 million and Rs.2,275.7 million, respectively, demonstrating an annual growth rate of 44.61%, 53.65% and 132.88%, respectively.
Muthoot Finance‘s networth as of March 31, 2008, 2009 and 2010 was Rs.2,131.1 million, Rs.3,614.5 million and Rs.5,841.9 million, respectively.
At the same time, Muthoot Finance‘s Gross non-performing assets (“NPAs”) were at 0.42%, 0.48% and 0.46% of its’ gross retail loan portfolio under management as of March 31, 2008, 2009 and 2010, respectively.
Muthoot Finance‘s peers in the marketplace are Manappuram General Finance & Leasing Ltd, SKS Microfinance Ltd, Shriram City Union Finance Ltd and Shriram City Union Finance Ltd. Barring SKS Microfinance Ltd which got pummeled due to regulatory issues in Andhra Pradesh and other States, the other micro-finance companies are doing quite well. Also, thanks to the gold collateral that Muthoot Finance keeps as security, it may be in a better position than its peers.
| Muthoot Finance‘s Peers | Last Price (Rs) |
MCap. (Rs in Cr.) |
P/BV (x) |
P/E (x) TTM |
Div. Yield (%) |
|---|---|---|---|---|---|
|
Manappuram General Finance & Leasing Ltd |
127.55 | 5,426 | 3.17 | 23.3 |
0.3 |
|
SKS Microfinance Ltd |
518.55 | 3,777 | 2.23 | 15.4 | 0.0 |
|
Shriram City Union Finance Ltd |
594.35 | 2,865 | 2.94 | 13.8 |
0.9 |
|
SE Investments Ltd |
19.25 | 793 | 2.64 | 13.1 | 0.1 |
Pricing of Muthoot Finance‘s IPO
As can be seen from the chart, all of Muthoot Finance‘s peers are quoting at premium valuations of 2+ Book Value. Manappuram General Finance & Leasing Ltd, Muthoot Finance‘s closest competitor is quoting at 3+ BV valuations. Muthoot Finance will also be priced in the same range. However, given the scorching pace at which Muthoot Finance has grown in the recent past and the huge potential in the market place, Muthoot Finance‘s premium pricing will not be unjustified.
Muthoot Finance IPO pricing details are available here: Muthoot Finance IPO: Reasonable Price
Muthoot Finance Ltd Research Reports
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