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Saturday, April 16, 2011

Muthoot finance Ltd (MFL)


Muthoot finance Ltd (MFL)

Company profile:
MFL is the largest gold loan financing company in India in terms of loan portfolio. Company provides personal and business loans backed by gold.
As of March 31,2010 total loan portfolio was 2.8 million loan accounts.
MFL operates through its 1921 branches across 20 states and 2 union territories.

Mode of Business:
MFL works as non deposit taking NBFC headquartered in Kerala. MFL issues non convertible debentures called "Muthhoot gold bonds" on a private placement basis. Proceeds from this forma significant source of funds for MFL"s loan business.
Besides this MFL also goes for bank and other debt instruments.
Gross NPA of MFL was below .5% for past 3 years.


MFL SWOT Analysis:

Strengths:

(1)  Largest branch network among gold loan NBFCs with about 1925 branches.
(2) Operating history evolves over a period of 70 years.
(3) As loans are collaterised by gold minimum documentation is required and short turnaround time (TAT).
(4) A1+ ranking by ICRA and P1+ ranking by CRISIL.

(5) Market leader in Gold loan business in India with a strong presence in under-served rural and semi urban markets where large portion of population has limited access to credit.


Weakness:
75% of loan portfolio comes from 4 South states viz. Karnataka, Andhra Pradesh, Kerala & Tamilnadu.

Opportunities: (1) MFL is working on making gold loan as lifestyle product to expand the customer base.
(2) MFL is also laying its hands in money transfer and foreign exchange & wind mill services


Threats: (1)Sharp fall in gold prices may result in more loan defaults.
(2) Adverse Govt. & RBI policies in future.
(3) Competition from few banks which provide gold loan at cheaper interest rates than NBFCs.

Competitors:
Apart from Mannapuram finance ,PSU banks like Indian bank, Indian Overseas bank, Federal bank and Andhra bank.


Financial Analysis:

Price band: 160-175

CAR (capital adequacy ratio): 
14.8 % (as on march 2010)



Issue details: 5,15,00,000 equity shares (13.85% of post issue paid up equity share capital)

Price/Earning ratio:
22.4 ( EPS of 7.59 on march 31, 2010)

Forward P/E: 14.64(Estimated EPS for. FY11 March )

Debt Equity ratio: 10 (this shall come down to around 4 after the completion of the IPO)

Inference: Purpose of the issue is to expand the capital base of the company to meet future capital requirement for funding of loans.
With rising gold prices scenario, this business model is much safer in comparison to  micro finance companies.
Higher P/E values are justified considering the average CAGR growth of net profit for last 5 years well above 50%.
The issue is supposed to give at least 15% return on the listing day provided overall market does not gets into a tailspin.


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