Introduction:
The year 2023 marked a phenomenal period for investors in the Indian stock market. Not only did both Nifty and Sensex consistently surpass their historical peaks, but a surge of Initial Public Offerings (IPOs) flooded the markets, resulting in substantial gains upon listing. As we approach the year-end, numerous companies are seizing the bullish market conditions to launch their IPOs.
Among the notable mainboard companies debuting in the primary markets in December 2023 is Muthoot Microfin Limited. Notably the third-largest NBFC-MFI in South India in terms of gross loan portfolio, the company plans to raise up to Rs. 960 crores through its IPO, comprising a combination of a fresh issue and an offer for sale. Keep reading to learn more about the Muthoot Microfin IPO and decide whether to invest in it.
About Muthoot Microfin Limited
Incorporated in 1998, Muthoot Microfin Limited operates as a Non-Banking Financial Corporation – Microfinance Institution (NBFC-MFI). The company offers small-ticket loans specifically to women borrowers with a special focus on the rural parts of Southern India. It is the third-largest NBCFC-MFI in South India in terms of gross loan portfolio and the largest in Kerela and Tamil Nadu in terms of market share.
As of 31 March 2023, the company had a gross loan portfolio of Rs. 10,867 crores with approximately 31.9 lakh active customers. Its total disbursals stood at Rs. 35,041 crores through 1.172 branches across India. The company’s market share in Tamil Nadu stood at 16% (as per the CRISIL report).
Open Demat Account with us to start investing!
Key Strengths of the Company
Examining the fundamental strengths of the issuing company is crucial for gaining insights into its prospective growth and making well-informed decisions regarding an IPO investment. As outlined in the Red Herring Prospectus (RHP), Muthoot Microfin Ltd. boasts several key strengths, including:
- The company is the third-largest NBFC-MFI in South India and fifth-largest in India in terms of gross loan portfolio
- The company primarily focuses on providing micro-loans to women borrowers, specifically in rural areas
- In the preceding five years, the company has expanded its operational footprint to North, East, and West India, thereby diversifying its customer base
- The company's loans are protected through credit-linked life insurance policies and natural calamity insurance through the Muthoot Pappachan Group
- The company borrows its working capital from diversified sources, including public and private banks, Non-Convertible Debentures (NCDs), etc.
- The company has implemented a streamlined operating model, leveraging technology effectively for enhanced efficiency
Key Risks or Weaknesses
Examining the risks and vulnerabilities of the issuing company provides valuable insights into potential threats that could impede its long-term growth. The key risks and weaknesses associated with Muthoot Microfin Ltd. include:
- The company derives a major portion of its revenue from South India, specifically Kerela, Karnataka, and Tamil Nadu. Unfavourable business conditions in these states may impact the business severely
- The microfinance business in India is prone to specific risks and challenges attributed to the demographic profile of its clientele. For example, the risk of Non-Performing Assets (NPAs)
- Fluctuations in the lending rates or repo rates of the Reserve Bank of India (RBI) may impact the company’s profit margin
- As of 31 March 2023, the company possessed high debts of approximately Rs. 5,123 crores
- Directors, promoters, and group companies are involved in multiple legal proceedings
Exciting opportunities ahead: Don’t forget to apply for Upcoming IPOs!
Core Financials of the Company
The company’s revenue and net worth have grown robustly and steadily in the last three years. The profit after tax has increased from Rs. 7 crores in FY21 to Rs. 164 crores in FY23. The return on equity (ROE) for FY23 stood at 11%. Refer to the table below for further details on the financials of Muthoot Microfin Ltd. for the last three financial years:
*Amount in Crores
Source – RHP dates 11 December on the SEBI website
Details of the IPO
Muthoot Microfin IPO opens for public subscription on Monday, 18 December 2023 and closes on Wednesday, 20 December 2023. It will comprise both a fresh issue and an offer for sale with a total issue size of Rs. 960 crores. The table below illustrates additional IPO details:
To conclude
The financials of the issuing company and attractive valuation make Muthoot Microfin IPO a lucrative bet. But before investing, you must consider your financial goals, risk appetite, and the prevailing market conditions.
Related Articles: How to Analyse an IPO | What is IPO Grading? | What is Cut Off Price In IPO Application
Popular Stocks: HDFC Bank share price | ICICI Bank Share Price | UPL Share Price | Tata Consumer Share Price | Divislab Share Price