Muthoot Fincorp Feberuary 2021 NCD offer review (May apply)

This is the 8 ^th debt offer from this company since July 2014.
This offer comes within one and half month of previous offer.
Issue is rated as CRISIL/A Stable and coupon rates are attractive considering falling interest rate regime.
Non clarity for consolidated first half of current fiscal on account of pandemic raises concern.
Coupon rates and tenures are same as per its last NCD offer of December 2020.

ABOUT COMPANY

Muthoot Fincorp Ltd. (MFL) is a non-deposit taking, systemically important NBFC registered with the RBI under Section 45 IA of the RBI Act. The Company is one of the largest Indian NBFCs engaged primarily in the business of providing personal and business loans secured by gold jewellery and ornaments ('Gold loans'). Its Gold loan products include Muthoot Blue Guide Gold loan, Muthoot Blue Bright Gold loan, Muthoot Blue Power Gold loan, Muthoot Blue Bigg Gold loan, Muthoot Blue Smart Gold loan and 24x7 Express Gold loan.

MFL's Gold loan products 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. The Gold loan portfolio of the Company as of September 30, 2020 comprised approximately 29.27 lakhs loan accounts that were serviced through 3599 branches located across 23 states, union territory of Andaman and Nicobar Islands and the national capital territory of Delhi. As of December 31, 2020, the Company employed 16,470 employees including 236 contracted experts in its operations.

In addition to the Gold loan business, the Company provides foreign exchange conversion and money transfer services as sub-agents of various registered money transfer agencies. It is also engaged in wind energy as well as real estate business through joint ventures. For Real estate business, it is exploring its own land bank.

OFFER DETAILS

MFL is coming out with its Secured Redeemable Non-Convertible debentures of Rs. 1000 each for a base amount of Rs. 150 cr. It has green shoe option to retain oversubscription of Rs.150 cr. thus making the overall size of the offer Rs. 300 cr. Issue opens for subscription on February 18, 2021, and will close on or before March 09, 2021. Minimum application is to be made for 10 NCDs (Rs. 10000) and in multiple of 1 NCD (Rs. 1000) thereon, thereafter. Post allotment NCDs will be listed on BSE. Application to be made only by ASBA mode and allotment will be in demat mode only. MFL will spend Rs. 3.84 cr. for the proceeds of the entire amount of Rs. 300 cr. Out of the available net proceeds 75% will be used for onward lending, financing, repayment/prepayment of existing borrowings with interest and the balance 25% for general corporate purpose.

This is the 8 ^th debt offer from the company since July 2014. Last offer was in December 2020.

This offer has tenures of 27 months, 38 months, 60 months and 72 months. It offers coupon rates ranging from 8.25% to 9.40% depending on the options applied for. Interest payment will be either Monthly, Yearly or Cumulative as per the choice of investors.

Issue is solely lead managed by SMC Capitals Ltd. while Integrated Registry Management Services Pvt. Ltd. is the registrar to the issue and SBI Cap Trustee Co. Ltd. is the Debenture Trustee.

Coupon Rates for Eash Series

	Series 1	Series 2	Series 3	Series 4	Series 5	Series 6	Series 7	Series 8	Series 9
Nature	Secured	Secured	Secured	Unsecured	Unsecured	Secured	Secured	Secured	Unsecured
Frequency of Interest Payment	Monthly	Monthly	Monthly	Monthly	Annually	Cumulative	Cumulative	Cumulative	Cumulative
Tenor	27 Months	38 Months	60 Months	72 Months	72 Months	27 Months	38 Months	60 Months	72 Months
Coupon Rate (Retail)	8.25%	8.50%	8.75%	9.00%	9.40%	NA	NA	NA	NA
Effective Yeild (Annually)	8.57%	8.84%	9.10%	9.38%	9.40%	8.58%	8.84%	9.10%	9.40%
Amount on Maturity	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,203	Rs 1,370	Rs 1,546	Rs 1,714

ISSUE RATINGS

This offer is rated as CRISIL/A Stable by CRISIL. This rating indicates that instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations and carry lowest credit risk.

FINANCIAL PERFORMANCE

On financial performance front, MFL has (on a consolidated basis) posted total revenue/net profits of Rs. 3353.76 cr. / Rs. 372.61 cr. (FY19) and Rs. 3758.68 cr. / Rs. 257.93 cr. (FY20). Despite surge in total income, it has suffered a setback in FY20 .

On a standalone basis, it has posted revenue/net profit of Rs.2484.65 cr. / Rs. 155.46 cr. (FY19), Rs. 2724.68 cr. / Rs. 219.08 cr. (FY20). For the half year period ended September 30, 2020, it has earned net profit of Rs. 166.70 cr. on revenue of Rs. 1416.77 cr. However, it has not given data on consolidated basis for the first half. Considering consolidated trend for last two fiscals, it raises concern.

Company's Gross and Net NPAs were at 1.90% and 1.45% of the total loan assets for Fiscal 2018 on standalone basis as per IGAAP. Its Stage 3 Assets to the total loan assets were at 4.51%, 1.86% and 2.62% and Stage 3 assets net of provisions to the total loan assets were at 3.26%, 0.61% and 1.17% on standalone basis as of September 30, 2020, March 31, 2020 and March 31, 2019, respectively. As of September 30, 2020 and March 31, 2020, MFL held cash balance of Rs. 210.54 cr. and Rs. 379.31 cr. and gold jewellery of 49.78 tons and 50.59 tons, respectively.

For the first half, its Gross and Net NPAs scaled up as it could not arrange auction of gold during this period, clarified by the management in the offer documents. Under the pretext of pandemic it has not shown first half consolidated performance even on unaudited basis. However, it has given many synopsis on accounting adjustments. It has not given unaudited accounts up to December 31, 2020.

As on December 31, 2020, it's paid up equity capital of Rs. 193.71 cr. is supported by free reserves of Rs. 2770 cr. Post issue its current debt equity ratio of 5.62 will stand enhanced to 5.72.

Conclusion / Investment Strategy

Although coupon rates are attractive with A (Stable) rating amidst falling interest rate scenario, considering weak financial data for FY20 and first half of current fiscal, cash surplus risk savvy investors may consider investment at their own risks.

Review By Dilip Davda on February 17, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

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