MUTHOOT MERCANTILE LIMITED NCD IPO – May 2024, should you invest?

High Yield | BBB/Stable Rated | Minimum Investment: 10k Only

Muthoot Mercantile Limited is issuing the Non-Convertible Debentures. These NCDs are BBB/Stable rated by India Ratings and Research. The NCDs are being issued in eleven series: coupon ranges from 10.50% to 10.80% p.a. and different tenures of 367 days, 18 months, 24 months, 36 months, 60 months and 75 months. The NCDs are senior secured and redeemable in nature. 

Muthoot Mercantile Limited NCD IPO: Coupon rates and effective yield for each of the series 

Allocation Ratio

The allocation ratio is prepared based on norms laid down by SEBI. Before announcing the allocation ratio, the same has to be approved by SEBI.  Once the IPO subscription closes, applications will be divided into different categories. The category-wise allocation ratio is always decided and declared during the launch of the particular IPO. Considering the Allocation Ratio, units will be assigned to applicants. Refer to the chart to know the application ratio for Muthoot Mercantile Limited NCD-IPO. 

Investment Process for Muthoot Mercantile Limited NCD IPO

You can invest in IPOs via GoldenPi in 3 easy steps.

If the investment amount is  less than & up to 10 lakhs, retail investors can apply for an IPO online.

If the investment amount is more than 10 Lakhs. 

Financial Overview

Snapshot stating the Revenue, Expenses, and PAT (In crores)

Cash flow for last few years (In crores)

Cash flow refers to the movement of cash in and out of the business at a specific point in time. It represents the net balance of the cash movement.

• • *Cash flow from operating activities reflects the amount a company generates through its product of services.
  • **Cash flow from investing activities reflects cash generated and spent relating to investing activities, like purchase of assets, sales of securities etc.
  • ***Cash flow from financing activities gives an insight into the financial stability of a company to its investors. It reflects the net flows of cash that are used to fund the company.

Ratio Analysis

Issue analysis

Pros 

• The NCD is BBB rated security with a stable outlook.
• The coupon rate is between 10.5% to 10.8% which is much higher than FDs.

Cons 

• Significant dilution in tangible net worth due to significant losses
• Tier-1 CAR falling below 15% in the medium term or on a sustained basis
• Deterioration in the asset quality

Liquidity

The company’s asset-liability situation indicates a favorable surplus for up to one year. Additionally, as of the end of March 2024, cash and bank balances amounted to Rs. 32.8 Cr, with unutilized bank lines totaling Rs. 27.9 Cr. This offers an extra layer of security to the liquidity profile, especially considering the debt repayment obligation of Rs. 19.1 Cr scheduled for March-May 2024.

To get better returns than Bank FDs, invest in NCD-IPOs online. 

About Muthoot Mercantile Limited 

Muthoot Mercantile Limited (MML) was established as a Public Limited Company in 1997 and obtained registration as a Non-Banking Finance Company from the Reserve Bank of India in 2002. As a prominent NBFC, Muthoot Mercantile Limited serves as the flagship entity of the Muthoot Ninan Group, founded by the late M. Ninan Muthoot in 1939. The company specializes in providing loans secured against gold.

Strengths

• Significant growth and expansion of franchise, enhancing geographic diversification: MML achieved notable growth in its gold loan business during FY23-FY24, with a 30% year-on-year increase in the loan book to INR 7 billion in FY24, driven by branch expansions.
• Reasonable profitability supporting growth: Despite a slight decrease in net interest margin to 11.94% in FY24 (compared to 12.33% in FY23), MML maintained reasonable profitability, albeit impacted by higher borrowing costs.
• Stable asset quality: The gold loan segment exhibited resilience during COVID-19 disruptions, maintaining stable asset quality with a gross NPA of 0.3% in FY24 (up from 0.27% in FY23).
• Adequate capitalization: MML, wholly owned by the chairman and family, possessed a tangible net worth of INR 1,647 million as of March 31, 2024.

Weakness

• Business scalability and profitability under monitoring: Increased competitive pressures in south India from various sources, including Nidhi companies, moneylenders, microfinance institutions, and banks offering agriculture gold loans, have resulted in slower AUM growth per branch and pricing pressure.
• Concentrated funding profile: As of March 2024, MML’s funding mix comprised NCDs (26%), subordinated debentures (38.6%), and loans from public sector banks (35.4%), indicating concentration. The company’s leverage stood at 3.5x by end-March 2024.

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Source- Prospectus May 02, 2024

Disclaimer – The information is published as on date 05/07/2024 based on information available on Prospectus May 02, 2024. The information may be subject to change in case of change in terms of prospectus or any other reason as the case maybe. Contents which are exclusively for educational information/knowledge sharing on capital market concepts and has no influence the investment/sale decisions of any investors.

About GoldenPi Expert

Abhijit Roy | CEO & CO-Founder GoldenPi

With over 15 years of experience across fixed income and debt markets, he brings deep domain expertise along with a strong focus on investor education and transparency. An alumnus of IIT Kharagpur and IIM Calcutta, his views are personal and should not be considered investment advice.

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