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Unlocking opportunities: Muthoot Microfin IPO analysis

Unlocking opportunities: Muthoot Microfin IPO analysis

Unlocking opportunities: Muthoot Microfin IPO analysi

Muthoot Microfin Ltd – IPO Note

Price Band: Rs. 277-291

Issue Date: 18th Dec-20th Dec

Recommendation: Apply

Company Overview: 

Muthoot Microfin Limited, a subsidiary of the Muthoot Pappachan Group, is a microfinance institution dedicated to empowering women in rural areas across India. Specializing in micro-loans, the company offers a diverse portfolio of financial products, including group loans for livelihood solutions, individual loans, and life betterment solutions such as mobile phone and solar lighting loans. Additionally, it addresses health and hygiene needs through sanitation improvement loans. Muthoot Microfin Limited also provides secured loans in the form of gold loans and its unique Muthoot Small & Growing Business (MSGB) loans, emphasizing support for small businesses. The company’s focus on social impact is evident in its commitment to fostering economic growth and improving living standards in underserved communities.

Company Profile:

  • Muthoot Microfin Limited is a leading microfinance institution in India, with a strong focus on serving women entrepreneurs in rural areas. The company is a part of the Muthoot Pappachan Group, a diversified conglomerate with a presence in various sectors.
  • Muthoot Microfin is the fourth largest NBFC-MFI in India in terms of gross loan portfolio. The company has a wide reach across 18 states and UTs, with over 1,340 branches and 3.19 million active customers. Muthoot Microfin has a robust IT infrastructure and a focus on digital collections. The company also has a strong presence in Tamil Nadu, with a market share of over 16%.
  • In recent years, Muthoot Microfin has been expanding its operations beyond South India. The company has opened over 700 branches in North, West, and East India, constituting 52.76% of its total branches. This expansion is a key part of Muthoot Microfin’s strategy to become the leading microfinance institution in India.
  • Muthoot Microfin is a well-established and respected company with a strong track record of financial performance. The company is well-positioned to continue to grow and expand in the future.

The Objects of the Issue:

  • Fund existing operations and exciting new initiatives like tech upgrades and geographic reach.
  • Boost capital to meet future needs and ensure growth.
  • Gain stock market visibility and access future capital.
  • Facilitate sale of shares by existing investors.

Outlook and Valuation:

  • Historically concentrated in South India, Muthoot Microfin has recently expanded its operations into North, West, and East India.
  • As of March 31, 2023, the company has 596 branches in North, West, and East India, representing 50.85% of total branches.
  • This expansion strategy is aimed at increasing the company’s footprint and customer base across diverse regions in India.
  • Growth Strategy: The company’s strategy of expanding across various geographies in India is expected to contribute to its ongoing growth in the coming years.
  • Competitive Landscape: According to the Red Herring Prospectus (RHP), Muthoot Microfin identifies Equitas Small Finance Bank Limited, Ujjivan Small Finance Bank Limited, CreditAccess Grameen Limited, and Suryoday Small Finance Bank Limited as some of its listed competitors.
  • Understanding the competitive landscape helps investors assess the market dynamics and positioning of the company.
  • Valuation and Peer Comparison:
    1. The company’s valuation is compared with peers in the microfinance and small finance banking sector.
    2. Peers’ average P/E (Price-to-Earnings) ratio is 18.22x, ranging from 6.33x to 26.67x.
    3. Muthoot Microfin’s P/E multiple, based on post-issue diluted FY23 EPS of Rs.11.54, is 25.23x at the higher price band.
    4. The assessment suggests that, compared to peers, the issue is considered fully priced in or fairly valued.
    5. At the higher price band, Muthoot Microfin’s listing market capitalization is projected to be approximately – Rs.4159.96 crores.
      ISSUE OFFER  
      Price band (INR) 277-291
      Bidding date DEC 18 – DEC 20, 2023
      Total IPO size (Cr) 960
      Fresh issue (Cr) 760
      Offer for sale (Cr) 200
      Market lot 51
      Face value (INR) 10
      Listing on NSE, BSE
      Retail Allocation 35%
      Rating Subscribe

Competitive Strengths:

  • Strong Brand and Market Leadership: Backed by a highly established financial services conglomerate, ensuring trust and brand recognition. Holds a significant market share in India, demonstrating experience and operational expertise.
  • Reliance on rural economies makes the company susceptible to agricultural downturns and economic fluctuations. Fosters income generation and economic activity in rural areas.
  • Focus on underpenetrated regions and product diversification indicates significant growth potential.
  • Aligns with social responsibility goals, potentially attracting ESG-conscious investors.
  • Wide geographical reach with over 1,340 branches, ensuring customer accessibility.
  • In-house technology development facilitates efficient loan disbursement and monitoring.
  • “Mahila Mitra” app promotes convenient payment methods for customers.
  • Offers various loan products, mitigating risk and catering to diverse needs.

Key Strategies:

  • Expand branch network and identify borrowers across India, not just South.
  • Build user-friendly platforms for smooth loan access and service.
  • Offer new loans and leverage referrals to grow customer base.
  • Diversify Funding: Tap new investors beyond traditional channels to fuel expansion.
  • Highlight social impact and invest in talent for sustainable growth.

Key Concerns:

  • Rural Vulnerability: Microfinance primarily serves rural populations, susceptible to agricultural downturns, weather fluctuations, and economic shifts. These external factors can impact borrowers’ repayment capacity and expose the company to loan defaults.
  • Regulatory Risks: The microfinance sector faces evolving regulations, some potentially affecting interest rates, loan sizes, and lending practices. Adapting to these changes without compromising profitability could be challenging.
  • Competition: The microfinance space is increasingly competitive, with established players and new entrants vying for market share. Maintaining a competitive edge in terms of interest rates, customer service, and technology could be costly.
  • High Credit Exposure: Muthoot Microfin’s loan portfolio is concentrated in a specific market segment. This concentration, while offering potential rewards, also exposes the company to higher risks if economic conditions in that segment deteriorate.
  • Customer Risk: Microfinance institutions (MFIs) often serve customers in the lower-income segments. Economic uncertainties or shocks affecting these customers may impact their ability to repay loans, leading to increased default risks.
  • Interest Rate Risk: The microfinance industry is vulnerable to interest rate fluctuations. Changes in interest rates can affect borrowing costs for both the MFI and its customers, influencing repayment dynamics.
  • Non-Performing Assets (NPA) Risk: An increase in non-performing assets or provisions can adversely affect the company’s financial health. This may result from economic downturns, borrower distress, or other factors impacting the repayment capacity of the customer base.
    Company Total income

           (ML)

    EPS P/E NAV Face value/Share
    Muthoot Microfin Limited 14463.44 14.19 20.5 139.15 10
    Peer group       1  
    Equitas Small Finance Bank Limited 48314.64 4.71 17.57 46.44 10
    Ujjivan Small Finance Bank Limited 47541.90 5.88 6.33 20.25 10
    CreditAccess Grameen Limited 35507.90 52.04 26.67 326.89 10
    Spandana Sphoorty Financial Limited 14770.32 1.74 381.72 436.58 10
    Bandhan Bank Limited 183732.50 13.62 17.32 121.58 10
    Suryoday Small Finance Bank Limited 128811 7.39 22.31 149.28 10
    Fusion Micro Finance Limited 17999.70 43.29 12.60 230.74 10
    PARTICULARS

    (In millions)

    FY23 FY22 FY21
    Equity share capital 1401.98 1333.33 1141.71
    Other equity 14856.51 12032.46 7757.19
    Net worth 16258.49 13365.79 8898.90
    Total Borrowings 51230.25 32969.85 25382.26
    Revenue from Operations 12906.45 7286.23 6227.84
    EBIDTA 7884.86 4256.60 3272.17
    PBT 2128.70 647.21 90.55
    Net profit 1638.89 473.98 70.54
    PAT 1639 474 70.4
    Total assets 85292 55915 41839

The image added is for representation purposes only

 

RBI Charts Course for Sustainable Growth: Inflation Control as the Key

Inox India Limited: Navigating the cryogenic frontier - IPO Insights

Inox India Limited: Navigating the cryogenic frontier - IPO Insights

Inox India Limited: Navigating the cryogenic frontier – IPO Insights
IPO note of Inox India Limited
Price Band: Rs 627-660
Issue Date: 14th Dec-18th Dec
Recommendation: Apply

Company Overview: 

Inox India Limited is a leading manufacturer and supplier of cryogenic equipment, offering a diverse portfolio that includes standard cryogenic tanks, beverage kegs, bespoke technology, equipment, and solutions, as well as large-scale turnkey projects. Their extensive product range caters to various industries such as industrial gases, liquefied natural gas (LNG), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals, and construction. From providing solutions for the storage and transportation of cryogenic fluids to contributing to the emerging fields of green hydrogen and LNG, Inox India Limited is committed to delivering innovative and customized cryogenic solutions across a broad spectrum of applications.

Company Profile:

Inox India Limited is a leading manufacturer and supplier of cryogenic equipment, offering a diverse portfolio that includes standard cryogenic tanks, beverage kegs, bespoke technology, equipment, and solutions, as well as large-scale turnkey projects. Their extensive product range caters to various industries such as industrial gases, liquefied natural gas (LNG), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals, and construction. From providing solutions for the storage and transportation of cryogenic fluids to contributing to the emerging fields of green hydrogen and LNG, Inox India Limited is committed to delivering innovative and customized cryogenic solutions across a broad spectrum of applications.

The Objects of the Issue:

  • Total Issue Size: Rs. 1459.32 Crore (at the upper price band of Rs. 660 per share)
  • Offer Type: Entirely Offer for Sale (OFS)
  • Number of Shares Offered: 2.21 crore shares
  • Face Value per Share: Rs. 2

Outlook and Valuation:

  • Inox India is the leading manufacturer of cryogenic storage tanks in India, holding a significant market share.
  • The company has a robust order book worth over Rs. 1000 crore, indicating healthy demand for its products.
  • Inox India is debt-free, which strengthens its financial position and provides room for future growth.
  • The Indian gas industry is expected to grow at a CAGR of 10% in the coming years, which could benefit Inox India as a key supplier of storage tanks.
  • Inox India Limited boasts superior EBITDA margins, exceeding 21%, a significant achievement compared to the average among listed capital goods players.
  • The company has consistently delivered a Return on Capital Employed (ROCE) of over 30% in recent years, attributed to strong asset turns ranging from 1.4 to 1.8 times historically.
  • The growing importance of green fuels, specifically liquid hydrogen, and a preference for liquefied natural gas (LNG) over diesel have contributed to robust top-line growth for Inox.
  • The company has witnessed a commendable 14% Compound Annual Growth Rate (CAGR) in revenue over the period FY20-23 and a noteworthy 16% growth in the first half of FY24.
  • Inox’s financial performance aligns closely with listed capital goods players, reflecting its competitive standing in the industry.

    ISSUE OFFER  
    Price band (INR) 627-660
    Bidding date 14th Dec-18th Dec
    Total IPO size (Cr) 1,459.32
    Fresh issue (Cr) NIL
    Offer for sale (Cr) 1,459.32
    Market lot 22
    Face value (INR) 2
    Listing on NSE, BSE
    Retail Allocation 35%

Competitive Strengths:

  • Inox India boasts a commanding market share in the Indian cryogenic storage tank market, exceeding 70%. This translates to strong brand recognition and customer loyalty.
  • They offer a diverse portfolio of tanks catering to various capacities and applications, ranging from small units for medical labs to large facilities for industrial gas storage.
  • Inox India serves a diverse clientele, including leading gas companies, government agencies, and pharmaceutical firms. This diversification mitigates risks associated with relying on a limited number of customers.
  • Inox India Limited attains operational excellence through vertical integration, advanced technological expertise, and an experienced workforce, ensuring superior quality and efficiency in cryogenic equipment manufacturing.
  • Inox India Limited demonstrates financial stability with a history of profitability, consistent revenue growth, a debt-free status enhancing financial flexibility, and a healthy order book reflecting sustained demand and growth potential.

Key Strategies:

Inox India Limited aims to capitalize on opportunities in the LNG and hydrogen sectors within the global clean energy transition, strategically capturing the full value chain across its product lines. The company plans to expand its standard cryogenic and non-cryogenic equipment business into international markets, further broadening its reach. Additionally, Inox aims to grow its large turnkey project business and remains committed to ongoing efforts to enhance operational efficiency and productivity.

Key Concerns:

  • Inox India Limited, despite not owning the name “INOX,” utilizes it as part of its corporate identity under a name license agreement with the Jain family, entailing an annual royalty of 0.25% of consolidated revenues, with potential ad-hoc increases impacting the company’s financials.
  • The company faces vulnerability to cyclical downturns in the global capital expenditure cycle, given its products’ long lifespan of 20-30 years, as a sharp decline in global capex demand could result in diminished demand, particularly in energy, steel, chemicals, fertilizers, aviation, and construction industries.
  • Inox India Limited relies heavily on a limited number of private and public customers and projects for its major revenue streams, making its financial performance susceptible to fluctuations in these key areas.
  • The company’s significant dependence on export sales exposes it to potential challenges in international markets, including geopolitical and economic uncertainties.
  • Adverse shifts in component, raw material, or other input costs may negatively impact the pricing and supply of Inox’s products, potentially affecting its profitability.
  • Given the inherent risks associated with cryogenic gases stored at very low temperatures, any leakage poses health hazards, adding a crucial safety dimension to the company’s operations.
  • Inox India Limited’s exposure to performance guarantees introduces a potential negative impact on its business, emphasizing the importance of managing contractual obligations effectively.

    PARTICULARS FY23 FY22 FY21
    EBIDTA 204 168 135
    EBIDTA Margin (%) 21.2% 21.4% 22.7%
    PBT 205 174 131
    Adjusted PAT 153 130 96
    EPS 16.8 14.4 10.6
    ROCE 38% 32.4% 31.9%
    EV/Sales 6.1 7.6 10
    EV/EBIDTA 29 35.4 44.1
    P/E 39.5 44.3 64.4

The image added is for representation purposes only

 

RBI Charts Course for Sustainable Growth: Inflation Control as the Key

Hindalco Industries Ltd Q1FY24 results updates

ONCG made a profit of Rs. 15205 Cr.

ONCG made a profit of Rs. 15205 Cr.

ONCG reported a standalone profit of Rs 15,205.85 crore for the month of June 2022, up 251% compared to the year-ago period, driven by strong operating performance and top-line growth. The standalone profit in Q1 FY22 stood at Rs 4,334.75 crore. The standalone revenue for the June FY23 quarter grew by 84% to Rs 42,321 crore compared to the corresponding period last fiscal. ONGC had a 91% year-on-year growth in its offshore business at Rs 27,990.4 crore and its onshore business increased by 72% to Rs 14,330.3 crore during the quarter.

Consistent natural gas output

At 1.63 million tons, Oil and Natural Gas Corporation (ONGC) produced 1.7% less oil due to lower output from western offshore. The production decreased by 12.34% in fields run by private businesses. However, compared to April through July 2021, when output was 9.96 million tons, it was only slightly lower during the first four months of the current fiscal, which started on April 1. On August 4, Oil Minister Hardeep Singh Puri tweeted that the trend of diminishing crude oil production had changed. The data from the ministry showed that Vedanta’s Rajasthan block had a lower output than ONGC’s oilfields in Gujarat and Assam.

The natural gas output was nearly steady in July at 2.88 billion cubic metres but was 3.4% higher from April to July at 11.43 bcm. The refineries processed 83.96 million tonnes of crude oil between April and July, operating at 103.87% of their capacity, compared to an operating rate of 92.01% for processing 76.64 million tons. Fuel production increased by 6.23% in July to 21.97 million tonnes and by 11.67% from April to July to 90 million tons.

The company has fixed August 19th, 2022 as the “Record Date” for determining members eligible to receive a final dividend of 3.25 per share (i.e., @ 65%) for the financial year 2021-22.

Valuations:

The EPS stood at Rs. 12.09 for Q1 FY23. The price to book ratio was at 0.73x. The return on assets was at 12.3%. The interest coverage ratio was 24x for June 2021. The EBITDA was at 2.50x. The ROCE and ROE were at 18.0% and 18.2%, respectively. The stock is trading at 3.35x while the five-year P/E ratio is at 7.51x. The scrip closed at Rs.136, up by 1.68% on Wednesday.

 

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