Muthoot Finance opens on Apr 18, should you subscribe?

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Muthoot Finance opens on Apr 18, should you subscribe?

Muthoot Finance, the non-banking finance company engaged in gold loan business, plans to raise Rs 901 crore via an initial public offer of 5.15 crore equity shares in the price band of Rs 160-175.

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Muthoot Finance, the non-banking finance company engaged in gold loan business, plans to raise Rs 901 crore via an initial public offer of 5.15 crore equity shares in the price band of Rs 160-175 a share.

This is the first public issue in the financial year 2011-12. Investment Advisor SP Tulsian feels that the issue may give a 10% gain over the upper band of the issue price of Rs 175.

"At the upper end of the price band at Rs. 175, share is being offered at a PE multiple of 12.8x based on expected FY11 EPS of around Rs.14 and equity of Rs. 320 crore (as on 31-Mar-11). On estimated post-money BVPS of Rs. 60 per share (including FY11 EPS), the PBV multiple works out to Rs. 2.92x. These valuation are bit expensive when compared with listed Manappuram General Finance." 

"Manappuram General, with 1,800 branches and gold loan portfolio of Rs. 6,500 crore, reported 9mFY11 PAT of Rs. 181 crore on topline of Rs. 759 crore, indicating EPS of Rs. 5.02 for nine months period. In Nov-2010, it had raised Rs. 1,000 crore via QIP which will sharply improve Q4FY11 performance, leading to expected FY11 EPS of close to Rs. 8 and BVPS of about Rs. 49, as of 31-Mar-11. Thus, at CMP of 127, Manappuram is trading at PE of 16x and PBV of 2.6x. Considering these, it is expected that promoters will be careful and transparent in dealing with public shareholders," he said.

Mehta Equities and GEPL Capital, with their positive outlook, recommended subscribing the issue.

"We believe MFL is a pure gold play in the burgeoning Indian consumer Gold Loan market with is growth 15-18% CAGR. We are positive on the business outlook on the loan against gold. With the above rationale like Strong brand, track record and management expertise, we advice investors to park there investment with a medium-to-long term horizon," Mehta Equities said.

"With less competition in the business segment MFL is well set in its segment because of it brand loyalty they have retained in the south Indian states. Now main focus is to penetrate the North Indian markets by adopting new strategies and also increasing sales from other investment alternative. Comparable peers like Manappuram and other NBFC are trading at price to earnings multiples of 18-23x and MFL is available at 18x. Hence, we recommend investors to subscribe for the IPO."

Considering robust GDP growth of India, increasing purchasing power and ever-growing appetite for gold, the company looks well poised for a sound growth trajectory in the years to come," GEPL Capital said.

The issue will close on April 20, 2011 for institutional buyers and on April 21, 2011, for non QIB bidders. Promoters will dilute 13.85% through the issue. The IPO opens on April 18.

"The purpose of the fund raising is to maintain our aims to attain a capital adequacy ratio (CAR) above 15%," said George Alexander Muthoot, managing director of Muthoot Finance. The company's current CAR stands at 14.79%.