Muthoot Fin
Introduction:
Premier gold-loan NBFC Muthoot Finance has entered the debt capital market with a public issue of secured redeemable non-convertible debentures (NCDs) of face value Rs. 1,000 each, to raise Rs. 250 crore with an option to retain another Rs 250 crore, taking the total fund raising to Rs. 500 crore.
Issue Details:
The first-cum-first-serve issue has opened on 17th September and closes on 5th October 2012, with an option in company’s hands to either close the issue earlier or extend the closing. (Update: Company has extended the closing of its NCD issue to 22nd October.) Minimum application amount is Rs 10,000, and in multiples of Rs, 1,000 thereof.
Rating: ‘AA-/Stable’ by CRISIL and ICRA indicating high degree of safety for timely servicing of financial obligations
Listing: To be listed on NSE and BSE with one NCD comprising a trading lot. NCDs in Series I to IV would be issued both in physical and demat form, while Series V NCD will be issued compulsorily in demat form.
What’s on offer: The NCD issue has 5 investment options as under:
| Particulars | Series I | Series II | Series III | Series IV | Series V |
| Frequency of interest payment | Annual | Annual | Monthly | Annual | On Redemption* |
| Tenure | 2 years | 3 years | 5 years | 5 years | 6 years |
| Coupon Rate (% pa) | 11.50% | 11.75% | 11.75% | 12.00% | NA |
| Effective Yield (% pa) | 11.50% | 11.75% | 12.40% | 12.00% | 12.25%* |
*Redemption amount of Rs. 2,000 per NCD
Company Background:
Muthoot Finance, India’s largest gold loan company in terms of loan portfolio and branch network, with gold loan portfolio of Rs. 23,336 crore as of 30th June 2012, comprising more than 60 lakh gold loan accounts served through a network of 3,780 branches. For FY12, company earned revenue of Rs. 4,537 crore and net profit of Rs. 892 crore. Company’s networth stands at Rs. 3,172 crore as of 30th June 2012, with CAR of 19.42%. For Q1FY13, its revenue rose to Rs. 1,287 crore and net profit to Rs. 246 crore. Thus, the company enjoys sound financial position along with a healthy balance sheet. Funds raised via the NCD issue will be used in regular financing activities, investments and to repay existing liabilities.
Rate of Return:
Over 12% interest rate on 5 year NCDs with annual interest payment (Series III and IV) seems attractive for retail investment in fixed income securities, given the longer tenure of the instrument, ensuring that capital is earning higher rate. Also, Series V is an equally good option, due to doubling of investment in 6 years time. Neither any bank nor any company (with credible rating) is offering interest rates in double digit on fixed deposits of 5 years and above.
Previous NCD Issue:
Company had issued NCDs three times previously (Sep 2011, Jan 20112, Apr 2012). The 5 year NCDs from these previous issues are currently trading at yields of 12.12% to 13.41%, with average of 12.65%. However, these listed bonds have very low liquidity.
Conclusion:
Tax-free HUDCO bonds are currently trading at yields of about 7.6% on BSE. At 12% pa, Muthoot’s NCDs lead to effective post-tax return of 8.29%, assuming highest tax bracket of 30.90%. Hence, ignoring the time frame, these NCDs fare favourably against the listed tax-free bonds.
Recommendation:
The current NCD issue is attractive for retail investors as it offers high ‘fixed returns’ for a long-term duration of 5 and 6 years. It fares better than bank FD, company fixed deposits and listed tax free bonds with respect to rate of return. Those looking for diversified investment options can go for the issue with 5 or 6 years tenure i.e. Series III, IV or V, based on an individual’s cash flow needs.