Introduction –

The Indian IPO market is expected to make rapid strides in the second half of 2023. Several companies are due to launch their Initial Public Offerings (IPO) during this period to raise capital from equity sales. For investors, this is an opportunity to acquire shares of growing companies.

In this article, we are going to talk about one such upcoming IPO in 2023 – Muthoot Fincorp Limited. It is the microfinance arm of the prestigious Muthoot Pappachan Group. Let’s see if this IPO warrants your attention.

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About the Company –

Muthoot Fincorp Limited is one of the leading Non-Banking Financial Companies (NBFCs) in India engaged in the business of gold loans. The company is a part of the Muthoot Pappachan Group, which operates in diverse business verticals, including real estate, hospitality, and power generation.

As of 31st March 2022, Muthoot Fincorp Ltd. was the third-largest gold loan player in India, with 3,657 branches across 24 states and union territories. The gold loan portfolio of the company comprised approximately 33.12 lakhs of loan accounts.

Apart from the gold loan business, Muthoot Fincorp Ltd. is also engaged in the business of wind energy and real estate.

Strengths of the company –

• The company is among the leading NBFCs in India and the third-largest gold loan player in terms of portfolio size
• It belongs to the prestigious Muthoot Pappachan Group, founded by Late Mathew M Thomas in 1979. Several companies under this group have already been listed on the stock exchanges
• The company offers its services extensively in various parts of the country. Its branches are spread across 24 states and union territories with a strong presence in South India
• The company is known to provide high-quality customer service. It boasts a large base of happy customers across the country
• The company has access to diverse sources for cost-effective business funding
• It boasts a skilled workforce and some of the most experienced management personnel

Weaknesses of the company –

• The company’s credit profile and reputation have taken a bit of a hit after it ventured into the real estate business. It’s because of the risks that are associated with such businesses
• The business model of the company is such that it requires substantial working capital. Any disruption in its funding sources that adversely impacts the company’s working prowess adversely
• The company’s revenues are highly vulnerable to interest rate risks. If the repo rate or base lending rate decreases, the company's revenues may come down
• The company is tightly regulated by the Reserve Bank of India (RBI) norms. There is very little scope for modifications in its business model
• If the customer defaults increase, the business can get hit badly. The financial condition of the company and its ability to operate efficiently can also get restricted

Financial Snapshot –

Muthoot Fincorp Ltd. has given pretty good financial performances over the last few years. The company's net worth has increased from Rs. 2,954 crores to Rs. 3,449 crores between FY 2019-20 and FY 2021-22. The tax-adjusted profit of the company for FY 2021-22 stood at Rs. 413 crores. These figures prove the company has delivered consistent performances surpassing all expectations.

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The company’s ability to access cost-effective working capital and effective optimization of management costs have been instrumental to its success. The table below depicts Muthoot Fincorp Ltd.’s financials as per the Draft Red Herring Prospectus (DRHP):

*Amount in Crores

IPO Details –

As per the DRHP filed by Muthoot Fincorp Ltd. with the market regulator, it plans to raise approximately Rs. 1,800 crores through its IPO. Although the IPO's issue dates and other details are yet to be announced, it is expected to hit the markets in the fourth quarter of 2023. 50% of the IPO would be reserved for Qualified Institutional Buyers (QIBs), 35% for retail investors, and 15% for Non-Institutional Buyers (NIBs).

With the money raised from the IPO, the company plans to:

• Augment its capital base to meet working capital requirements
• Tackle general corporate purposes

The final words

Consistent financial performances and a large customer base are enough to warrant a subscription for the Muthoot Fincorp Ltd. IPO. However, as an investor, you must be wary of the company’s weaknesses and market-related risks before making the final move. All in all, this IPO could be a good bet to fetch decent medium to long-term returns.

If you want to open a Demat account for subscribing to this IPO, you can use Motilal Oswal's help.

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