IGI Logo

A leading south KEY CHANGES: -based player in the microfinance

Muthoot Microfin Ltd. (MML), a microfinance institution promoted by the Muthoot Pappachan Group, specializes in providing micro-loans to women customers, primarily for income generation in rural areas of India. As of March 31, 2023, MML ranks as the 5th largest NBFC-MFI in India based on its gross loan portfolio. Additionally, it holds the position as the 3rd largest NBFC-MFI in South India by gross loan portfolio and is the leading microfinance institution in Kerala with the highest market share. MML is also a significant player in Tamil Nadu, holding an almost 16% market share. The company serves 0.32cr active customers through 1,340 branches across 339 districts in 18 states and union territories in India, as of September 30, 2023.

• The microfinance industry’s gross loan portfolio increased at 21% CAGR since FY18 to reach ~ ?3.3 trillion in Q3FY23 and is expected to reach ?4.9 trillion by the end of FY25. (Source: CRISIL MI&A).

• The Assets Under Management (AUM) of the company increased to Rs.10,870.67cr in H1FY24 from Rs.7,449.47cr in H1FY23.

• Muthoot Microfin's revenue increased by 44% CAGR to Rs.1,446.34cr between FY21-23, while its PAT zoomed by 384% CAGR during the same period. The net interest margin expanded by 200 bps YoY to 11.6% for FY23.

• MML saw a significant improvement in asset quality, with gross NPAs decreasing to 2.97% from 7.39% and net NPAs declining to 0.60% from 1.42%, which are among the lowest in the NBFC-MFI sector.

• The RoA improved from 0.2% to 2.2% over FY21–23, while the RoE improved from 0.8% to 11.1% over the same period, which is impressive within the industry.

• In H1FY24, the income rose 70% YoY to Rs.1,047cr and the profitability of the company surged 1,537% to Rs.205.26cr.

• They're expanding into North, East, and West India, with plans to expand into Uttar Pradesh, Bihar, Rajasthan, and Punjab, which are underpenetrated states.

• MML is supported by marquee investors, namely Creation Investments India LLC and Greater Pacific Capital WIV Ltd, who collectively hold 28% of the equity share capital of the company on a fully diluted basis.

• At the upper price band of Rs.291, MML is available at a P/B of 1.9x (FY24E annualised), which appears to be reasonably priced. Going forward, the microfinance industry will continue to exhibit strong growth on the back of the government’s continued focus on strengthening the rural financial ecosystem, robust credit demand, and higher-ticket loans disbursed by microfinance lenders. Based on its diversified lending products, focus on digital transformation, and expanding geographical footprint, we assign a “Subscribe” rating for MML on a medium- to long-term basis. Purpose of IPO The IPO is a combination of a fresh issue (Rs.760cr) and an OFS portion (Rs.200cr). The net proceeds from the fresh issue will be utilised for augmenting the capital base to meet future capital requirements and general corporate purposes.

Key Risks

• The Company’s main operations are in South India, accounting for 52% of gross loan portfolio, which is expected to decrease in future due to expanding geographical footprint.

• The microfinance industry’s unique customer profile may lead to increased non-performing assets, potentially affecting financial performance.

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345