Monday, April 11, 2011

Muthoot Finance IPO - Analysis, Recommendation, Review

Muthoot Finance, a Gold financing company, is set to enter capital market with a public issue of 51.5 lakh equity shares of face value of Rs 10 per share. The issue will constitute 13.85% of the fully diluted post issue paid-up equity share capital of the company.

Muthoot Finance is the largest gold financing company in India in terms of loan portfolio. It provides personal and business loans secured by gold jewellery, or gold loans, primarily to individuals. Revenues from gold loan business constituted 95.97%, 96.71% and 98.08% of total income in the year ended March 31, 2008, 2009 and 2010, respectively.

The IPO will open on 18th March, 2011 and will close on 21st March, 2011. The company has decided the price band of Rs 160 - Rs 175 per share.

Issue proceeds will be mainly used for augmenting capital base to meet future capital requirements to provide for funding of loans to customers.

The company has raised about Rs 1.3 billion ($30 million) from 11 cornerstone investors ahead of the launch of its initial public offering to raise up to $203 million. The company alloted 7.7 million shares, or 15 per cent of the total offering of 51.5 million shares, to anchor investors at Rs 170 a share. The anchor investors that bought shares in the pre-IPO sale include Citigroup Global Markets Mauritius , Abu Dhabi Investment Authority , Goldman Sachs India Fund and Baring India Private Equity Fund.

ICICI Securities Limited, Kotak Mahindra Capital Company Limited and HDFC Bank Limited are the book running lead managers to the issue. Link Intime India Private Limited is the registrar to the issue.

Recommendation:
CRISIL and ICRA have both assigned Grade 4 to the IPO which means that the IPO has above average fundamentals. Gold is having a dream run in commodities market and the issue seems priced fairly. The company has good growth potential in the medium term.


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