Muthoot Microfin
IPO Size: Rs. 960 cr
- Rs. 760 cr fresh issue to augment capital base
- Rs. 200 cr offer for sale (OFS) by the promoter (69% to 55%) and investor Greater Pacific (19% to drop to 15%)
Price band: Rs. 277-291 per share
M cap: Rs. 4,961 cr, implying 19% dilution
IPO Date: Mon 18th Dec to Wed 20th Dec 2023, Listing Tue 26th Dec 2023
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Rural Focussed Micro Finance Institution (MFI)
Part of Muthoot Pappachan Group (different from listed Muthoot Finance), Muthoot Microfin is Kerala’s largest micro loan provider and enjoys 16% market share in Tamil Nadu. With assets under management (AUM) of Rs. 10,867 cr, it has 32 lakh customers, served through 1,340 branches. Home-state Kerala and Tamil Nadu account for 17% and 26% of AUM respectively, with non-South being a respectable 48% of AUM. Thus, AUM is fairly diversified geographically.
AUM Doubled in Past 30 Months
Despite the post-pandemic stress in the bottom of the pyramid population, Muthoot’s AUM grew at an impressive 37% CGAR since FY21 to H1FY24. AUM doubled in 2.5 years, from Rs. 4,987 cr in Mar 2021 to Rs. 10,867 in Sep 2023. This combined with a healthy asset quality - net NPA of 0.33% (as of 30.9.23) and collection efficiency bouncing back to 98.9% in H1FY24 from 93.71% in H1FY23.
Financials, now Normalized
On an average yield of 22%, Muthoot Microfin clocked a net interest margin (NIM) of 12.39% for H1FY24. As provisions were contained at Rs. 63 cr in H1FY24, vis-à-vis Rs. 223 cr in FY23, first half PAT stood at Rs. 205 cr, leading to an EPS of Rs. 14.2.
H1FY24 (non-annualised) RoA was 2.2% and RoE at 11.84% (FY23 full year RoE of 11.1%), despite 11.2% cost of borrowing, as company has a high leverage / debt equity ratio of 4.2x, with A+ credit rating.
Unlike home loan providers, company lends on fixed rate of interest, and thus, when interest rates fall (likely mid-2024 onwards), it’s yields will not be as adversely impacted.
Priced at a Discount to Peers
BVPS as of 30.9.23 stood at Rs. 128, which will rise to Rs.153 post money. PBV multiples are at 1.90x and 1.76x on post-money and FY24E basis respectively.
Largest NBFC-MFI CreditAccess Grameen with Rs. 23,000 cr AUM is ruling at H1FY24 PBV multiple of 4.7x, while Fusion and Spandana, each with Rs. 10,000 cr AUM and net NPA of 0.65% and 0.42% (poorer asset quality), are trading at PBV multiples of 2.3-2.4x, making Muthoot’s IPO price at about 20-25% discount to peers.
Satin Credit, with Rs. 10,100 cr AUM has same NIM as Muthoot, but its asset quality is poorer (net NPA 0.49%) and RoE is also lower at 18.5% (against 23.7% for Muthoot), yet it is ruling at 1.4x PBV. Micro loan focused small finance banks (SFB) like Equitas SFB, with Rs. 31,000 cr AUM, 0.97% net NPA and 8% NIM is trading at PBV multiple of 2.2x, while Ujjivan SFB is at PBV of 2.5x, for Rs. 27,000 cr AUM, 0.1% net NPA and 10% NIM.
Even on an earnings basis, the pricing has left money on the table for IPO investors. Annualising H1FY24 EPS leads to current year PE multiple of only 10x, while most peers are ruling in a range of 13-20x.
19th Dec 2023 at 09:08 pm
18th Dec 2023 at 08:13 am
17th Dec 2023 at 08:29 pm
17th Dec 2023 at 06:26 pm