Company Profile
Muthoot Finance Limited (MFL) is a non deposit taking Non Banking Financial Corporation (NBFC) headquartered in Kerala. Company has the long history of 72 years in the gold financing business. As of March 31, 2011, MFL is the largest gold financing company in India in terms of loan assets under management and has a branch network of 2,733. The total employee strength of the company is 19,125 as on the same date. The main business of the company is to lend against the pledged gold jewellery and used household gold.
Business analysis
It generates its revenues mainly from the gold loan business. The total share of gold loan in the revenue pie is 98.75% for the year ended on March 31, 2011. It also provides money transfer services through its branches and has been operating three windmill projects in Tamil Nadu. Both the businesses have not been contributing much to the revenues of the company. MFL’s interest income has jumped from 
223.5 crore in 2007 to 2,298.3 in the year ended on March 31, 2011. Loan Assets under management stood at 15,800 crore as on March 31, 2011.
Company has been expanding its business fast in a last few years, which is clear from the revenue growth recorded by the company. Thus to finance various activities such as lending and investments, company is raising money through issuance of non convertible debentures. The proceeds may be used repaying existing liabilities or may also be used for funding operational requirements of the business such as Capex and working capital requirement.
The details of the offering (NCD) are as follows:
| Issuer |
Muthoot Finance Limited |
| Offering |
Public Issue of NCDs aggregating to 500 crore with an option to retain over-subscription up to 500 crore for issuance of additional NCDs aggregating to a total of up to 1000 crore. |
| Rating |
‘CRISIL AA-' by CRISIL & ‘ ICRA AA-’ by ICRA |
| Security/ Security cover |
Pari Passu with other secured creditors and priority over unsecured creditors |
| Face Value |
1,000 per NCD |
| Issue Price |
At par ( 1,000 per NCD) |
| Minimum Subscription |
5 NCDs and in multiples of 1 NCD thereafter |
| Tenure |
- Option I: 24 months
- Option I: 36 months
- Option II: 60 months
|
| Coupon rate |
- Option I: 11.75% p.a. for category I, and 12.00% p.a. for category II and category III investors.
- Option II: 12.00% p.a. for category I, 12.25% p.a. for II and III investors.
- Option III: 12.00% p.a. for category I and 12.25% p.a. category II investors and category III investors.
|
| Interest Payment |
On each anniversary of the deemed date of allotment |
| Trustee |
IDBI Trusteeship Services Limited |
| Listing |
NSE & BSE |
| Depository |
National Securities Depository Limited and Central Depository Services Limited |
| Registrars |
Link In time India Private Limited |
| Issuance |
Demat form only |
| Issue Open Date |
August 23, 2011 |
| Issue Close Date |
September 05, 2011 |
| Deemed Date of Allotment |
Deemed date of allotment shall be the date of issue of the Allotment Advice / regret. |
| Eligible Investors |
Category I |
Category II |
Category III |
|
- Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and Regional Rural Banks, which are authorised to invest in the NCDs
- Provident Funds, Pension Funds, Superannuation Funds and Gratuity Fund, which are authorised to invest in the NCDs
- Venture Capital funds registered with SEBI
- Insurance Companies registered with the IRDA
- National Investment Fund
- Mutual Funds
|
- Companies; bodies corporate and societies registered under the applicable laws in India and authorised to invest in the NCDs
- Public/private charitable/religious trusts which are authorised to invest in the NCDs
- Scientific and/or industrial research organisations, which are authorised to invest in the NCDs
- Partnership firms in the name of the partners
- Limited liability partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008
|
- Resident Indian individuals
- Hindu Undivided Families through the Karta
|
Note: PAN card is mandatory for subscribing to these NCDs. A self attested copy shall be enclosed along with the application form.
Investors (category II and category III) will also have the following options available at the time of subscribing to the issue:
|
Option I |
Option II |
Option III |
| Minimum Application amount in Rs. |
5000 |
5000 |
5,000 |
| Thereafter in Multiples of |
1,000 |
1,000 |
1,000 |
| Tenor |
24 months |
36 months |
60 months |
| Interest Payment |
Yearly |
Yearly |
Yearly |
| Coupon Payment Date |
On each anniversary |
On each anniversary |
On each anniversary |
| Coupon |
12.00% per annum |
12.25% per annum |
12.25% per annum |
| Tax slabs (%) |
10.3 |
20.6 |
30.9 |
10.3 |
20.6 |
30.9 |
10.3 |
20.6 |
30.9 |
| Effective Yield -Pre Tax (%) * |
12.00 |
12.00 |
12.00 |
12.25 |
12.25 |
12.25 |
12.25 |
12.25 |
12.25 |
| Post Tax Returns (%) * |
10.75 |
9.51 |
8.28 |
10.98 |
9.72 |
8.46 |
10.98 |
9.72 |
8.46 |
(Source: Draft prospectus registered with SEBI. & PersonalFN Research)
Well, after reading the details of the NCD (as provided above), there may be still some more questions popping up, which are answered hereunder:
- Will I get any tax benefit if I invest in these NCDs?
No, these NCDs do not entitle you to any tax benefit nor are these any "infrastructure bonds", which make you eligible for an additional tax deduction under section 80 CCF.
- Is interest on these NCDs Tax Free?
No, the interest on these NCDs is not tax free - it is chargeable to tax. The interest income will be taxed under "income from other sources", and will be brought to tax at the respective income tax rates you fall under. However no tax will be deducted at source as these NCDs are issued in demat form and are listed on the exchange.
- What is the Tax Treatment on Capital Gains for these NCDs?
If you happen to sell these NCDs before 365 days, you will have to pay short term capital gain tax (@ applicable to you as per your tax slab) arising on the profit. Provisions of long term capital gain tax will be applicable for any sale of securities after 365 days. Any long term capital gain on these securities will be taxable @ 10% without indexation benefits or 20% with indexation benefits.
- Can a minor apply to these NCDs?
Yes, a minor can apply for these NCDs, but only and only through a guardian.
- Can one apply in joint names?
Yes, one may apply in a joint name. However, the demat account will also be required to be held in joint name and the order of applicant shall be the same as appearing in the demat account. Moreover, all payments will be made out in favour of the first applicant as well as all communications will be addressed to the first named applicant whose name appears in the application form and at the address mentioned therein.
- Who will get the interest in case of joint application?
In case of joint application, interest will be accounted to the first holder only.
- My demat account is in joint name, but I want to apply is a single name?
In case of a single application, demat account of the same single applicant would be necessary. Joint demat account would not do.
- If I’m an NRI can I invest in these NCDs?
No, NRIs are not eligible to invest in these NCDs.
- Is there a lock-in period while investing?
No. There is no lock-in period for these NCDs. In terms of providing liquidity, these NCDs are proposed to be listed on the National Stock Exchange and the Bombay Stock Exchange.
- In whose favour the cheque is to be made?
Cheques/Drafts have to be made in the favour of "Escrow Account Muthoot Finance NCD- Public Issue" and crossed "A/C PAYEE ONLY" "
OUR VIEW:
In our opinion the yields on investment offered by MFL are attractive. The credit rating too, allotted to the issue is stable (‘CRISIL AA-‘ by CRISIL and ‘ICRA AA-‘ Stable by ICRA). Minimum ticket size has purposefully been kept low at 5,000 to encourage the retail participation. Capital adequacy ratio is reasonable, 15.82% (against the 15% prescribed by RBI). Net NPA (Net Non Performing Assets) constituted 0.33% of the total loan book as on March 31, 2011, which is fairly low. Lower the net NPA better it is for the health of the company.
We are of the opinion that lower capital adequacy ratio may limit further expansion of the business though we don’t see this as a big threat to MFL meeting its obligations in the near future. MFL has also stated that they might use the corpus raise by the NCD issue to meet working capital and capex requirements. We believe this may not help MFL post higher revenues in the immediate future. Lower NPA ratio indicates that the company has been cautious to the quality of loans.
Considering all odds, we recommend investors to subscribe for the issue only if one wants to earn regular fixed returns at rates higher than the rate offered by bank FDs. Considering the post tax yield being the same for 3 and 5 year period, it would be prudent to consider the option II of the NCD. However an investor may consider his or her investment horizon before applying to the issue.
In case you wish to invest in the above instrument, you can email us at info@personalfn.com or contact us on 022-6136 1200
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Add Comments
| Comments |
bemoneyaware@gmail.com
Aug 29, 2011
Good article. How does it compare to other similar NCD manappuram ? |
cosmetic@aaagb.biz
Sep 28, 2011
Whoa, things just got a whole lot easier. |
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