Muthoot Finance NCD Public Issue: Review and Should you invest?

Muthoot Finance Ltd is launching its public issue of NCDs to raise funds from the debt market. Read further to know more about the business of Muthoot Finance Limited.

About Muthoot Finance Limited:

Muthoot Finance Ltd (“MFIN”) is the largest gold loan NBFC in India. MFIN is an “Upper Layer NBFC” (NBFC-UL) headquartered in the south Indian state of Kerala. It has been operating since 1939 when M George Muthoot (the father of current Promoters) founded the company. It provides loans secured by gold jewellery, ornament, etc for personal or business purposes to individuals who are not able to access credit or are in urgent need of money. 

On a standalone basis, MFIN has a loan AUM of Rs. 57,731 crs as of December 2022 across 29 states and 4,600+ branches. It has an active customer base of 52.33 lakhs and 81.05 lakhs of loan accounts as of December 2022. For the years ended March 31, 2020, 2021 and 2022, its revenues from the gold loan business constituted 96.81%, 95.88% and 96.67%, respectively of the total income. 

About Muthoot Group:

The corporate structure of Muthoot Finance is mentioned below:

In 1939, M. George Muthoot created a partnership firm under the name of Muthoot M. George & Brothers (MMG). MMG was a chit fund based out of Kozhencherry. In 1971, the firm was renamed as Muthoot Bankers and started to finance loans using gold jewellery as collateral. In 2001, the company was renamed to Muthoot Finance. Muthoot Finance falls under the category of the systematically important non-banking financial company(NBFC) of the RBI guidelines. As of December 2022, the promoters hold 73.35% of the equity stake in the company.

Muthoot Finance Ltd is the Flagship Company of the group. The group companies are engaged in various financial activities as elaborated below:

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 per cent. 

Company Financials (Standalone):

Company Financials (Consolidated):

Borrowings:

Top 10 Debenture holders as on January 20, 2023:

Peer Comparison (December 2022):

Comforts:

• Muthoot Finance is the leading gold loan NBFC in India
• More than 95% of the loan portfolio is secured by gold which is a highly liquid asset
• The asset quality is comfortable with GNPA at 2.58% and NNPA at 2.31% as of December 2022
• The company is adequately capitalised with Capital Adequacy ratio of 33.29% as of December 2022

Concerns:

• Most of the loan portfolio is concentrated in South India (47% as of December 2022)
• Moderation of growth in business in the recent past