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Muthoot Microfin IPO: Issue size, GMP, financials, should you apply?

Muthoot Microfin IPO: Shares of the company are trading at a premium of Rs 90 in the unlisted market, translating into a listing premium of 31 per cent

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Nikita Vashisht New Delhi
Muthoot Microfin's Rs 960-crore initial public offer (IPO) has opened with decent investor interest on Monday, December 18. In little over one hour, the issue has been subscribed 23 per cent led by retail investors.

The portion reserved for retail was subscribed 40 per cent till 11:30 AM, while that on non-institutional investors (NIIs) was booked 12 per cent. 

About the Muthoot Microfin IPO issue

Muthoot Microfin's IPO is a combination of fresh issue of 26.1 million shares, aggregating to Rs 760 crore, and offer for sale for 6.9 million shares worth Rs 200 crore. The net proceeds from the fresh issue will be utilised for augmenting the capital base to meet future capital requirements and general corporate purposes.

The bidding started Monday and will close on Wednesday, December 20, 2023. 

The price band for the offer has been set at Rs 277 to Rs 291 per share. The minimum lot size for an application is 51 shares, and in multiples thereafter. 

50 per cent of the offer is reserved for QIBs, 15 per cent for NIIs, and 35 per cent for retail investors.

About the company

Muthoot Microfin Ltd, a microfinance institution promoted by the Muthoot Pappachan Group, specialises in providing micro-loans to women customers, primarily for income generation in rural areas of India. 

As of March 31, 2023, MML ranked as the fifth largest NBFC-MFI in India based on its gross loan portfolio, and was the third largest NBFC-MFI in South India by gross loan portfolio. Muthoot Microfin is the leading microfinance institution in Kerala with the highest market share. 

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The NBFC is expanding into North, East, and West India, with plans to expand into Uttar Pradesh, Bihar, Rajasthan, and Punjab, which are underpenetrated states.

MML is supported by marquee investors, namely Creation Investments India LLC, and Greater Pacific Capital WIV Ltd, who collectively hold 28 per cent of the equity share capital of the company on a fully diluted basis.

Financials

The Assets Under Management (AUM) of the company increased to Rs 10,870.67 crore in H1FY24 from Rs 7,449.47 crore in H1FY23. Muthoot Microfin's revenue increased by 44 per cent CAGR to Rs 1,446.34 crore between FY21-23, while its net profit zoomed by 384 per cent CAGR during the same period. 

The net interest margin expanded by 200 bps Y-o-Y to 11.6 per cent for FY23. Besides, its asset quality has improved significantly with gross net profit assets (NPAs) decreasing to 2.97 per cent from 7.39 per cent, and net NPAs declining to 0.60 per cent from 1.42 per cent during the period.

The return on asset (RoA) improved from 0.2 per cent to 2.2 per cent over FY21–23, while the retun on equity (RoE) improved from 0.8 per cent to 11.1 per cent over the same period.

Peer Analysis

Once listed, Muthoot Microfin will trade along Creditaccess Gramin Bank (m-cap Rs 27,986 crore; P/B 5.4x), Fusion Micro Finance (m-cap Rs 5,699 crore; P/B 2.4x), and Spandana Spoorty Fin. (m-cap Rs 7,225 crore; P/B 2.3x). 

Grey Market Premium

Shares of the company are trading at a premium of Rs 90 in the unlisted market, translating into a listing premium of 31 per cent over the upper end of the price band.

Key risks

1) Muthoot's business is vulnerable to interest rate risk, and volatility in interest rates could have an adverse effect on its net interest income and net interest margin.

2) The NBFC availed loans, amounting to Rs 8,019 crore (of which 59.7 per cent is outstanding) as of September 30, 2023, may be recalled by its lenders on demand which may adversely affect its business performance.

3) An increase in the level of its non-performing assets or provisions may adversely affect its financial condition.

Should you subscribe to Muthoot Microfin IPO? Here's what brokerages say:

Geojit Financial Services | Subscribe

At the upper price band of Rs 291, MML is available at a P/B of 1.9x (FY24E annualised), which appears to be reasonably priced. 

Going forward, the microfinance industry will continue to exhibit strong growth on the back of the government's continued focus on strengthening the rural financial ecosystem, robust credit demand, and higher-ticket loans disbursed by microfinance lenders. 

Based on its diversified lending products, focus on digital transformation, and expanding geographical footprint, we assign a "Subscribe" rating for MML on a medium- to long-term basis.

Anand Rathi | Subscribe for Long-term

As of September 30, 2023, their gross loan portfolio in the top three states, namely Kerala, Karnataka, and Tamil Nadu, together accounted for 51.36 per cent of their total gross loan portfolio. Over the past five years, they have expanded their operations in North, East and West India, which has allowed them to diversify their customer base and gross loan portfolio and increase their revenue from operations.

At the upper price band company is valued at P/BV of 2.2X with a market cap of Rs 4,960.8 million post issue of equity shares. We believe that valuations of the company is fairly priced, and recommend a "Subscribe-Long Term" rating to the IPO.

BP Equities | Subscribe

Muthoot Microfin has a long-standing track record of high customer retention in loan cycles 2 and 3. Its well-balanced customer distribution across loan cycles indicates a focus on acquiring new customers, as well as retaining existing ones.

As the lender will utilise the net proceeds of the fresh equity shares issue to augment its Tier-I capital base, its capital adequacy will enhance and lead to a stable leverage position. At the current P/BV multiple of 2.3x, we believe the company is fairly valued and advise investors to "Subscribe" from a medium to long-term perspective.

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First Published: Dec 18 2023 | 12:28 PM IST

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