Kosamattam Finance Jan 2023 NCD Public Issue Review

Kosamattam Finance Limited is coming up with their public NCD issuance, they have filed final prospectus on SEBI. Let’s understand the profile of Kosamattam Finance, its business model & competitive analysis.

About Kosamattam Finance: Company was incorporated on March 25, 1987, as ‘Standard Shares and Loans Private Limited’, a private limited company under the Companies Act, 1956. Subsequently, the name of the company was changed to ‘Kosamattam Finance Private Limited’ and a fresh certificate of incorporation dated June 8, 2004, was issued to the company by the RoC. Subsequently, upon conversion to a public limited company, the name of the company was changed to ‘Kosamattam Finance Limited’ and a fresh certificate of incorporation was issued by the RoC on November 22, 2013.

The company was registered as a non-deposit accepting NBFC with the RBI pursuant to the certificate of registration No. 16.00177 dated December 19, 2013, issued by the RBI under Section 45 IA of the RBI Act.

About Group: Company is part of the Kosamattam Group. Founded by Nasrani Varkey, the group have evolved over the three decades and has prominence in South India.

Gold Loan is the most significant product in the product portfolio of the company. Gold Loan customers are typically businessmen, vendors, traders, farmers, salaried individuals and families, who for reasons of convenience, accessibility or necessity, avail of credit facilities by pledging their gold jewellery under the various gold loan schemes the company offers. However, the company has also taken exposure in mortgage loans.

Currently Kosamattam has 3,663 employees, serving around 10 lakh customers through its 980 branches as on 31 January,2023. Overall, AUM of Kosamattam group is around ₹ 4,449.13 Crore as of 31^st December 2022.

Group History: Kosamattam group was founded by Mr. Nasrani Varkey in 1927, with the main activity being chit fund business. In 1980, the group ventured into the gold loan business under Mr. Mathew Cherian (great grandson of Mr. Nasrani Varkey). Kosamattam group has over three decades of experience in providing loans against gold jewellery. Mr. Mathew K Cherian is the present Chairman and Managing Director of Kosamattam Group and is a fourth-generation entrepreneur in the family.

Group Companies: Company has 7 group companies including 1 partnerships/LLPs & 1 Nidhi company. However, the Nidhi company is involved in the business of lending money.

Business Model of Kosamattam Finance

Kosamattam Finance is one of the evolving gold loan players in the Indian market. From FY2016 to FY2022, Kosamattam Finance has shown a significant increase in its gold loan portfolio at a compound annual growth rate of around 22.46 %. 

The gold loan portfolio of company as of January 31, 2023, comprised approximately 10 lakhs loan accounts. As of January 31, 2023, company operated out of 980 branches located across 9 states. Company has total AUM of ₹ 4,449.13 Crore out of which gold loan portfolio has over 98% share.

Gold loan industry

Gold loans (also known as loans against gold) refer to short-term loans sanctioned by banks, non-banking financial companies (NBFCs) and other lenders against the pledge of gold ornaments and jewellery and are popular with farmers looking to meet agricultural expenses and individuals or households who need to meet planned or unplanned expenses. Indians regard gold as a vital symbol of social status, financial security, and intergenerational legacy, and such is the emotional and cultural attachment to gold that households prefer to use gold as collateral for financing for key life goals like healthcare, farming, small business, education, and weddings, rather than liquidate the metal outright for cash. The gold loan is therefore a historically popular instrument, and the overall gold loan market consists of the organised sector (with regulated players such as banks, NBFCs, and Nidhi companies) as well the unorganised/informal finance sector (run by pawnbrokers and moneylenders). The World Gold Council (WGC) estimates that the overall gold loan market (organised and unorganised) in India has grown from Rs. 600 billion in FY2009-10 to Rs. 9,000 billion in FY2019-20, at a CAGR of 31.1 percent.

Company’s Financials

Peer Comparison: As of 31^st December 2022

Credit Rating

Borrowings of the Company

As of 31^st January 2023, company has total o/s debt of ₹ 4,258.34 crore, as follows:

The company has 20 bank lenders on its balance sheet. However, NCD’s are a major fund source for the company.

Top 5 lenders: Top 5 lenders forms ~ 19% of total borrowings.

Comforts/Concerns on the Entity

Comforts:

• Strong brand value & experience promoters over 3 decades.
• Majority of the portfolio is backed by gold which is highly liquid.
• Comfortable portfolio quality – Gross NPA stood at 1.50% and Net NPA at 0.97%.

Concerns:

• Company operates at a high leverage of 6.06x which is above the industry mean of ~2.42x.
• Portfolio Concentration – Southern states holds over 98% of the portfolio as of 30^th September 2022.
• Intense competition in the gold loan business.
• Resource profile concentration – NCD’s are the major source of fund procurement for the company.
• Company has a significantly lower CRAR compared to its peers.

Source of data: Final Prospectus, Annual Report, Rating Rationale, Quarterly results, etc.