What you must know about Muthoot Microfin IPO?

Muthoot Microfin Ltd was incorporated in April 1992 and is the microfinance arm of Muthoot Pappachan Group. The group has already made deep inroads into the gold loans business and microfinance is one of the ways of engaging with customers in a more fruitful way. Muthoot Microfin Ltd is a fast-growing microfinance institutions (NBFC-MFI) in India. The company is focused on providing micro-loans to women entrepreneurs with a focus on rural regions of India. It broadly offers livelihood solutions, life betterment solutions, health & hygiene solutions, secured loans and other value added services. The microfinance operations are designed to promote entrepreneurship among women and inclusive growth. The micro loans provided by Muthoot Microfin Ltd include income generating loans to women engaged in small businesses. The whole idea is to ensure delivery of financial services to rural and semi-urban customers with speed and at affordable terms. This is part of the financial inclusion, which even the prime minister has been very passionate about.

Muthoot Microfin Ltd operates on the rather unique joint liability group model of microfinance. This model exclusively caters to women in lower income households and is premised on the fact that if such individuals are given access to credit, they will be able to identify new opportunities and supplement and grow their existing income. Muthoot Microfin not only reaches out to the underbanked and unbanked persons, but has customized solutions for these potential customers at the bottom of the social and economic pyramid. Hence they have designed lending products to cater to such unique requirements. Some of the customer numbers are quite staggering in the case of Muthoot Microfin Ltd. The company currently has around 31,93,479 active customers with nearly 15,04,436 customer app downloads. Its total disbursements stand at ₹35,041 crore, which it runs and services through its network of branches. It has presence in 18 districts of UTs of India and has total AUM of ₹10,867 crores. The fresh issue portion will be largely utilized to augment its capital base to expand the asset book in future. The IPO will be lead managed by ICICI Securities, Axis Capital, JM Financial and SBI Capital Markets. KFIN Technologies Ltd will be the registrar to the issue.

Highlights of the Muthoot Microfin IPO issue

Here are some of the key highlights to the public issue of Muthoot Microfin IPO.

• Muthoot Microfin IPO will be open from December 18, 2023 to December 20, 2023. The stock of Muthoot Microfin Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the band of ₹277 to ₹291 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of Muthoot Microfin Ltd will be a combination of a fresh issue of shares and an offer for sale (OFS). As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• The fresh issue portion of the IPO of Muthoot Microfin Ltd comprises the issue of 2,61,16,838 shares (261.17 lakh shares approximately), which at the upper price band of ₹291 per share will translate into a fresh issue size of ₹760.00 crore.
   
• The offer for sale (OFS) portion of the IPO of Muthoot Microfin Ltd comprises the sale of 68,72,852 shares (68.73 lakh shares approximately), which at the upper price band of ₹291 per share will translate into a fresh issue size of ₹200.00 crore.
   
• Out of the total shares worth ₹200 crore, shares worth ₹50 crore will be offered by Greater Pacific Capital which is an investor shareholder in Muthoot Microfin Ltd. The balance shares worth ₹150 crore will be offered by the promoter group.
   
• Therefore, the overall IPO of Muthoot Microfin Ltd will comprise of the issue and sale of 3,29,89,690 shares (329.90 lakh shares approximately), which at the upper price band of ₹291 per share translates into total IPO size of ₹960.00 crore.

The IPO of Muthoot Microfin Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Thomas John Muthoot, Thomas Muthoot, Thomas George Muthoot, Preethi John Muthoot, Remmy Thomas, Nina George and Muthoot Fincorp Limited. Currently the promoters hold 69.08% stake in the company, which will get diluted post the IPO to 55.47%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, as mentioned above. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Muthoot Microfin IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Muthoot Microfin Ltd, the minimum lot size is 51 shares with upper band indicative value of ₹14,841. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Muthoot Microfin Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Muthoot Microfin IPO and how to apply?

The issue opens for subscription on 18th December 2023 and closes for subscription on 20th December 2023 (both days inclusive). The basis of allotment will be finalized on 21st December 2023 and the refunds will be initiated on 22nd December 2023. In addition, the demat credits are expected to happen on 22nd December 2023 and the stock will list on 26th December 2023 on the NSE and the BSE. Muthoot Microfin Ltd will test the appetite for the financial stocks, especially those catering to the bottom of the pyramid. The credits to the demat account to the extent of shares allotted will happen by the close of 22nd December 2023 under ISIN (INE046W01019). Let us now turn to the more practical issue of how to apply for the IPO of Muthoot Microfin Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Muthoot Microfin Ltd

The table below captures the key financials of Muthoot Microfin Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Muthoot Microfin Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been robust and growing. However, what stands out about Muthoot Microfin Ltd is that the net profits have grown 3-fold over last year and manifold over the last two years. The focus on the bottom of the pyramid surely appears to be paying off for the company in a big way.
    
2. Being a proxy for the organization of the financial lending business, the company benefits from organic growth and the shift from the unorganized segment. Its Net margins and ROE have been impressive in the latest year while the ROA at 1.92% is above the industry median.
    
3. The company has had low sweating of assets, but it may not too relevant at this juncture when the company is on a high growth path. For the financial intermediation business, it is more of the spread that matters, and that has been robust for Muthoot Microfin Ltd.

Let us turn to the valuations part. On the latest year diluted EPS of ₹11.66, the stock is available in the IPO at a P/E of 24.96 times. That is a fairly reasonable P/E ratio if you compare with the similar P/E ratio of the peer group. On a weighted average basis, the P/E is around 40.14 times. However, considering that most of the growth traction has come in the last one year, the current P/E may also appear to be conservative as forward projections based on H1FY24 numbers look to make the stock relatively more attractive in P/E terms.

Let us look at some of the qualitative advantages that Muthoot Microfin Ltd brings to the table.

• It has market leadership with pan-India presence
   
• Strong brand recall due to its parentage and a tradition of trust, which helps
   
• Effectively use of digital outreach methods making the business model scalable
   
• Client stickiness fairly high in the bottom of the pyramid.

It is a high return business and works best when an omnichannel approach is leveraged to the hilt. The valuations look reasonable, since this is a niche business with high growth potential and we have not even started looking at future discounting. Investing in the IPO is suitable for investors looking for a proxy to investing in bottom of the pyramid stories. Risk may be high, but considering the brand recall, the IPO may be worthwhile for the investors.