Muthoot Vehicle & Asset Feb2020 NCD offer review (May apply)

MVAFL is now having thrust for retail financing.
It belongs to a well known Muthoot group.
This is the maiden debt offer from MVAFL.
Issue is rated CRISIL/A stable by CRISIL.
Financial performance with declining bottom line raises concern.

ABOUT COMPANY:

Muthoot Vehicle & Asset Finance Ltd. (MVAFL) is a deposit-taking vehicle and asset finance company operating primarily in the State of Kerala registered with the RBI as a NBFC- D from November 30, 1998. It has been recently re-classified as a NBFC - Investment and Credit Company (NBFC-ICC) pursuant to RBI's recent directive. The company is in the business of granting loans against the security of vehicles and assets predominantly in Kerala and also operates in Coimbatore, Tamil Nadu. It is a part of the Muthoot Group and was incorporated as for undertaking hire-purchase operation.

As on November 15, 2019, it had license to operate 25 branches with a vast majority i.e. 22 branches, located across 12 districts in the state of Kerala. Further, it also holds licenses to operate in Delhi, Coimbatore and Bangalore. Its loan portfolio comprises retail lending and top up loans with vehicle financing constituting the largest component. As at the 6 month period ended September 30, 2019, Fiscal 2019, Fiscal 2018 and Fiscal 2017, MVAFL's total loan portfolio was Rs. 441.04 cr., Rs. 428.11 cr., Rs. 384.53 cr. and Rs, 205.46 cr., of which vehicle loans comprised 94.07%, 93.48%, 90.41% and 86.88%, respectively. As at November 15, 2019, it had 308 permanent employees and 83 employees on contract basis.

Presently, its business operations are primarily focused on retail lending portfolio and cater extensively to retail customers. While in the past it had a wholesale lending business vertical which extended loans to commercial businesses, it has, presently discontinued this vertical to ensure that its resources are concentrated on retail lending portfolio which it believe is more productive and stable. The existing business loans 113 portfolio will be wound down and it do not propose to make fresh disbursement of business loans to corporate clients. It has, though, in Fiscal 2020 started the inventory funding and trade advance vertical which is an aspect of wholesale lending. The average ticket size of its retail loan is Rs. 5 lakh with a tenure ranging from 12 to 84 months with the average tenure of 57 months. As on 30.09.19 its retail lending portfolio had 11665 customers comprising 99.54% of the total asset under management (AUM).

ISSUE DETAILS:

To part finance its plans for onward lending and for repayment of interest and principal of existing loans (75% of the net proceeds) and general corporate funds (25% of the net proceeds), MVAFL is coming out with a maiden debt offer of Secured Redeemable Non-Convertible Debentures of face value of Rs. 1000 each. The base issue size is Rs. 100 cr. and the company has green shoe option to retain oversubscription up to Rs. 100 cr. making the overall issue size of Rs. 200 cr. The issue has already opened for subscription on 25.02.2020 and will close on or before 18.03.2020. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiple of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE.

Issue is solely lead managed by Inga Ventures Pvt. Ltd. IDBI Trusteeship Services Ltd. is the Debenture Trustee and Link Intime India Pvt. Ltd. is the registrar to the issue. The company is spending Rs. 2 cr. to mobilize Rs. 200 cr. debt.

This issue is rated CRISIL/A Stable by CRISIL and CARE BBB+/Stable by CARE. The rating by CRISIL indicates that the instruments are considered to have adequate degree of safety regarding timely servicing of financial obligations and such instruments carry low credit risk. The rating by CARE is later withdrawn vide their letter dated 24.01.2020. CARE rated the instruments with lower rating that indicted that the instruments are considered to have moderate degree of safety regarding timely servicing of financial obligations.

Terms of the Secured NCDs

�	Series 1	Series 2	Series 3	Series 4	Series 5	Series 6	Series 7	Series 8	Series 9	Series 10
Frequency of Interest Payment	Monthly	Monthly	Monthly	Annually	Annually	Annually	Cumulative	Cumulative	Cumulative	Cumulative
Nature	Secured
Tenor	24 months	38 months	60 months	24 months	38 months	60 months	24 months	38 months	60 months	90 months
Coupon Rate	9.25%	9.50%	9.75%	9.50%	9.75%	10%	NA	NA	NA	NA
Amount on Maturity	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,193.56	Rs 1,333.72	Rs 1,592.29	Rs 2,000

This issue has tenures of 24 months, 38 months, 60 months and 90 months. It offers coupon rates from 9.25% to 10% with monthly, annually and cumulative interest rate payments options.

FINANCIAP PERFORMANCE:

For the last three fiscals MVAFL has posted total income/net profits of Rs. 38.97 cr. /Rs. 8.47 cr. (FY17), Rs. 54.79 cr. / Rs. 10.18 cr. (FY18) and Rs. 71.25 cr. / Rs. 11.18 cr. (FY19). For the first half of FY20 it has earned net profit of Rs. 1.64 cr. on a total income of Rs. 35.53 cr. against net profit of Rs. 4.51 cr. on a total income of Rs. 32.85 cr. Thus decline in bottom line raises concern despite top line growth.

Its gross / net NPAs as on 30.09.19 has rose to 4.59% / 3.59% raising concern. For FY 19 and FY 18 they were 1.50% / 1.23% and 0.94% / 0.74% respectively.

As on 30.09.19 its paid up equity capital of Rs. 25 cr. is supported by free reserves of Rs. 77 cr. plus. Its current debt equity ratio of 3.72 (as on 30.09.19) will stand enhanced to 5.68 post this debt offer.

MERCHANT BANKER'S TRACK RECORD:

This is the first debt offer from Inga Venture and has no previous track record. It had done an IPO of Neogen Chemicals that fared well since listing.

Conclusion / Investment Strategy

Although vehicle and asset finance sector is poised for growth, and the company is from well known Muthoot group, miniscule performance and the declining bottom line raises concern. Issue is rated on an average. Hence only risk savvy cash surplus investors may consider investment at their own risk. (Other).

Review By Dilip Davda on February 25, 2020

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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