Muthoot Finance NCD Public Issue Tranche II September 2023 Review

About the Issue

Muthoot Finance Limited has launched its public issue of NCDs to mobilise funds from the debt market. Read further to know more about the business of Muthoot Finance Limited.

Specified terms of the NCD’s are as follows:

About the Muthoot Finance Limited

Muthoot Finance Limited (“MFIN”) is the largest gold loan NBFC in India. MFIN is an “Upper Layer NBFC” (NBFC-UL) headquartered in the 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. 67,639 crs as of June 2023 across 29 states and 4,700+ branches. It has an active customer base of 54.13 lakhs and 83.36 lakhs loan accounts as of June 2023. For the years ended March 31, 2021, 2022 and 2023 its revenues from gold loan business constituted 95.88%, 96.67%, and 95.10% respectively of the total income.

About the Group

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 systematically important non-banking financial company (NBFC) of the RBI guidelines. As of June 2023, the promoters hold 73.35% of the equity stake in the company.

Over the years, MFIN has established its presence in the gold finance market as the largest institution in history. The total income of the company amounted to ₹ 11,975.01 crs for the year ended March 31, 2023, and ₹ 12,238.16 crs for the year ended March 31, 2022, on a consolidated basis. The company earned profit of ₹ 3,669.77 crs for the year ended March 31, 2023, and ₹ 4,031.32 crs for the year ended March 31, 2022, on a consolidated basis.

 MFIN is the flagship company of the group. The corporate structure of MFIN is shown below: 

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 ₹ 600 billion in FY2009-10 to ₹ 9,000 billion in FY2019-20, at a CAGR of 31.1%.

Financial Performance (at consolidated level)

*This has been calculated excluding the foreign subsidiary “Asia Asset Finance PLC”.     

CRAR of NBFCs in the group (Standalone)

Borrowings (Standalone)

Top 10 NCD holders as on August 11, 2023:

Nature of Borrowings

Type of Borrowings

Peer Comparison* (FY 2023)

*Consolidated

**Standalone                      

Credit Rating history

Conclusion

Comforts

• One of the largest gold finance companies with an established track record.
• More than 95% of the loan portfolio is secured by gold which is a highly liquid asset.
• Adequate capitalisation with CRAR of 31.77% as of March 2023.
• Comfortable group leverage at 2.52x as of March 2023.

Concerns

• Most of the loan portfolio is concentrated in South India (48% as of March 2023).
• Moderation of growth in business in the recent past.