With the international price of yellow metal hitting an all-time high (quoting over $1,500-an-ounce mark) and the Indian stock market rallying, enthusiastic investors lapped up the public issue of the gold loan company Muthoot Finance Ltd well ahead of its closure deadline on April 21.
The issue was oversubscribed around 24 times, led by the strong demand from institutional investors and HNIs, even as retail investors also applied for shares more than what was reserved for them. The strong response from investors makes it one of the best primary market issues to hit the local market in recent times, in terms of oversubscription figures. Muthoot intends to use the issue proceeds to augment its capital base and meet future capital requirements for funding of loans.
Given the demand for shares, the issue price is likely to be the upper end of the price band of Rs 160-Rs 175 per share or Rs 170, the price at which the anchor investors bought shares, ensuring gains for most of its private equity investors.
Matrix Partners and Kotak PE would be sitting on unrealised gains of around 30 per cent on their less-than-a-year-old investment while Baring PE Partners India would count book profits of around 40 per cent (not counting its further purchase as anchor investor) and Wellcome Trust would just about make up for its investment cost.
The company had earlier attracted investments from around 15 anchor investors that included Baring India Private Equity Fund III, Goldman Sachs and Credit Suisse, besides the world’s largest sovereign wealth fund Abu Dhabi Investment Authority, among others.
ICICI Securities and Kotak Mahindra Capital were the book running lead managers while HDFC Bank was the co-BRLM to the issue.
Business & Competition
The Kerala-based NBFC, touted to be the largest gold loan company in India in terms of loan portfolio, provides personal and business loans secured by gold jewellery. It primarily caters to individuals who possess gold jewellery but cannot access formal credit within a reasonable time or to whom credit may not be available at all. These loans help meet their short-term liquidity requirements.
The gold loan business was started by M George Muthoot in 1939 under the group’s trading business of Gold Loans. In addition, it also provides money transfer services through its branches as sub-agents of various registered money transfer agencies, and has recently started collection agency services. The firm also operates three windmills in Tamil Nadu.
As of February 2011, it had a network of 2,611 branches employing 15,664 persons across India. In comparison, its closest peer Sequoia Capital-backed Manappuram Group, which has a listed company Manappuram General Finance & Leasing Co, has around 2,150 branches in India according to its website.
Manappuram was started nearly a decade after Muthoot, but it also has an equally illustrious history from its initial days of being a local money lender. The company has diversified its business into forex services, money transfers and insurance brokerage while retaining gold loans as the core business.
Both the firms have a fully entrenched presence in southern India, although they have been trying to build a more pan-India spread of their network. Muthoot, in particular, has been actively expanding its north Indian presence.
Valuation
The annualised revenues of Manappuram General Finance for the fiscal ended March, 2011 (extrapolated for results for the first three quarters) work out to be around Rs 1,000 crore, with net profit of Rs 240 crore. At a market cap of Rs 5,444 crore ($1.2 billion), it is valued around 22.6 times its trailing earnings.
But Muthoot is a much bigger player. Its total income for the first eight months of the year ended November, 2010, stood at Rs 1,301 crore with net profit of Rs 291.5 crore. Annualising this for the full last fiscal ended March, 2011, the company would have revenues of around Rs 2,000 crore with net profit of Rs 437 crore.
At Rs 170 per share, Muthoot would be able to generate a valuation of over Rs 6,300 crore or $1.4 billion, giving it a valuation multiple of 14.4x on its projected profit for the year and making it attractive, compared to its already listed peer. This can well be the reason why it has managed to sell its shares like hot cakes.