Muthoot Microfin IPO: A Comprehensive Analysis

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Muthoot Microfin Ltd (MML) has emerged as a formidable player in the Indian NBFC microfinance sector. Let's delve into the details to uncover its market position, financial performance, strengths, risks, and what investors should consider.

Muthoot Microfin IPO Timeline & Details: Everything You Need To Know

  • Muthoot Microfin IPO Price: The company has set a price band of Rs 277 to Rs 291 per share for its IPO.
  • Muthoot Microfin IPO Opening Date: Subscriptions for the IPO commenced on December 18.
  • Muthoot Microfin IPO Size: The firm aims to raise Rs 960 crore through its initial public offer, comprising a fresh issue of Rs 760 crore and an offer for sale (OFS) of Rs 200 crore.
  • How to Apply for Muthoot Microfin IPO: Prospective investors can bid in lots, with each lot comprising 51 shares of the company. To participate in the IPO, the minimum investment is set at Rs 14,841.
  • Allotment Timeline: As per the IPO schedule, the Muthoot Microfin IPO share allotment is expected to be finalized on December 21.
  • Muthoot Microfin IPO Listing Date: The public offer is anticipated to debut on BSE and NSE on December 26, 2023.
  • Muthoot Microfin IPO GMP: According to market observers, Muthoot Microfin IPO is commanding a grey market premium of Rs 80 (a premium of 27.5% over IPO price) as of today.

Subscription Status

On Tuesday, the second day of its launch, the Muthoot Microfin IPO achieved a subscription rate of 2.83 times. According to the National Stock Exchange (NSE) data, the IPO garnered bids for 6,89,23,185 shares, surpassing the 2,43,87,447 shares available. The retail individual investor portion witnessed a subscription of 4.05 times, while non-institutional investors showed a 3.11 times subscription rate. The portion allocated for Qualified Institutional Buyers (QIBs) was filled to 46%.

On the first day of the offering, Monday, the IPO saw an 82% subscription. The firm has already raised Rs 284.99 crore from anchor investors prior to the public offering.

About Muthoot Microfin Ltd

Founded on April 6, 1992, MML holds the prestigious position of being India's fifth-largest NBFC microfinance entity, dominating the microfinance landscape in Kerala. As part of the Muthoot Pappachan Group, a diversified conglomerate with interests spanning financial services, automotive, hospitality, real estate, IT infrastructure, precious metals, and alternate energy, MML leverages its affiliation for brand recognition and operational advantages.

With a significant clientele of 31.9 lakh active customers served by a dedicated workforce across 1,340 branches, MML has seen substantial growth. Its gross loan portfolio reached Rs 10,867 crore as of September 2023.

Strengths

1. Robust Financial Growth: MML displayed a remarkable 45% CAGR in Revenue from Operations and a 382% CAGR in Net Profit between FY21 and FY23.

2. Notable AUM Growth: The Assets under Management (AUM) witnessed a significant 36% CAGR, reaching Rs 10,867.06 crore by September 2023.

3. Rapid Growth in Disbursements: Disbursements surged with a 75% CAGR, from Rs 2,636.77 crore in FY21 to Rs 8,104.47 crore in FY23.

4. Improving Asset Quality: Gross and net NPAs saw substantial improvement to 2.97% and 0.6%, respectively, demonstrating effective risk management.

5. Decent Return Metrics: There was a notable improvement in Return on Equity as well, which climbed from 0.79% in FY21 to 11.06% in FY23, alongside a Return on Assets of 3.3%.

6. Strong Capital Adequacy: The capital adequacy ratio stands at 20.46% of risk-weighted assets as of September 2023, which is above the requirement of 15%.

Risk Factors

1. Nature of Microfinance Loans: Predominantly unsecured, MML's loans are extended to customers in a high-risk category, relying on alternative guarantees instead of traditional collateral.

2. Concentration of Loan Portfolio: A substantial portion of the loan portfolio (~51.4%) is concentrated in three key states, posing a risk to performance if adverse developments occur.

3. Cash Flow Concerns: MML has previously faced negative cash flows in its operating, investing, and financing activities. Persistent negative cash flows from operations or substantial short-term cash outflows from investing and financing could impact operations and expansion plans.

4. Loan Repayment Risks: As of September 30, 2023, MML has taken loans totalling Rs 8,019 crore, with 59.65% of this amount still outstanding. If any of these unsecured loans are demanded back by the lenders and the company is unable to repay the due amounts, it would lead to a default under the respective loan agreements.

5. Legal Proceedings: MML, its Directors, Promoters, and Group Companies are involved in various legal cases totalling Rs 417.8 crore. Negative outcomes in any of these cases could harm the firm’s reputation and overall business operations.

Final Verdict: Subscribe

MML, with its strong financial performance, growing presence, and digital innovation focus, appears well-positioned to harness upcoming growth opportunities. 

In terms of valuation, the IPO seems reasonably priced, with a price-to-earnings (P/E) ratio of 12 times, based on the projected earnings for the fiscal year 2024. Additionally, the grey market premium for the issue suggests a premium listing.

Considering these factors, investors may consider subscribing to this issue from a medium-to-long-term perspective.

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