Muthoot Microfin likely to debut with marginal listing gains

Muthoot Microfin provides micro-loans to women customers with a focus on rural regions of India

Muthoot Pappachan Group-backed Muthoot Microfin is likely to make a lukewarm debut on the bourses on December 26 as per trends from the grey market. The stock commands a premium of Rs 25 in the grey market, suggesting gains of around 9 percent at the time of its listing.

The expectations of a minor listing boom is aligned with the kind of response received by the company's initial public offer. The company's IPO was subscribed 11.52 times, with qualified institutional buyers (QIBs) leading from the front as they bid 17.47 times their allotted quota. Retail investors bought 7.61 times while high net-worth individuals (HNIs) bid 13.2 times the reserved portion.

"With Muthoot Microfin receiving a decent subscription of about 12x, we expect the IPO to list at a premium of around 10 percent to the issue price of Rs. 291 per share. With the history of its group company catering to customers in economically weaker sections, Muthoot Microfin better understands the needs of women in rural households and designs lending products to cater to their requirements," said  Shreyansh Shah, Research Analyst, StoxBox.

'Additionally, the lender has a well-diversified funding profile that underpins its liquidity management system, credit rating, and brand equity," Shah added. He also advised investors who have received allotment to hold their shares from a medium to long-term perspective as the stock will be fairly valued at the current P/BV multiple of 2.3 times its H1FY24 annualised book value.

Also Read | Muthoot Microfin, Happy Forgings, Azad Engineering IPOs draw attractive premium in grey market

The Muthoot-group backed non-banking financial company provides micro-loans to female customers, with a specific emphasis on rural areas in India. As of March 31, 2023, it ranks as the fifth-largest NBFC-MFI (micro-finance institution) based on the gross loan portfolio, and holds the position of the third-largest in southern India.

At the upper end of its price band of Rs 277-291 per share, the company's price-to-earnings (P/E) ratio sits at 30.3x, which is cheaper than its listed peers like CreditAccess Grameen (32.4x) and Spandana Sphoorty Financial (551.2x) but more than Equitas Small Finance (20.2x), Ujjivan Small Finance (9.3x), Bandhan (15.6x), Suryoday Small Finance Bank (21.7x) and Fusion Micro Finance (13.5x).

On the earnings front, the company recorded a fivefold on-year growth in net profit at Rs 163.9 crore for FY23 with revenue jumping 71.6 percent to Rs 1,428.8 crore during the same tenure.

As for the first six months of FY24, the NBFC company's net profit rose 16.5 times to Rs 205.2 crore compared to the year-ago period, while net interest income during the same period jumped 65.6 percent.

Brokerage firm Anand Rathi believes that the company has a market leadership with a pan-India presence. At the upper price band, the company will command a market cap of Rs 49,608 million after the issue, which according to Anand Rathi is fairly valued.

The company plans to use the proceeds from the public offer towards augmenting the capital base to meet its future capital requirements, which are expected to arise out of the growth of Muthoot Microfin's business and assets.

Also Read | Muthoot Microfin IPO subscribed 11.52 times, retail portion booked 7.61 times on final day

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