IPO: Muthoot Microfin

Muthoot Microfin, a non-banking microfinance company, is coming out with its IPO (initial public offering) on December 18, 2023. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality: Its three-year average ROE and ROA are 5.4 per cent and 1.1 per cent, respectively. Additionally, it recorded an average net interest margin of 9.8 per cent in the last three financial years. Growth: In the last three financial years, it grew its AUM and PAT at an annual growth rate of 35 per cent and 382 per cent, respectively. Higher loan disbursement and increasing distribution reach in new areas drove this growth. Valuation: The stock is valued at a P/E and P/B of 13.9 and 1.9 times, respectively, as compared to its peer's median and average of 15.4 and 2.0 times, respectively. Overview: Rising demand for small ticket loans and its presence in an underpenetrated segment (rural loans) will drive growth. However, high competitive intensity in the overall lending market and an uptick in gross non-performing assets (GNPAs) may pose a threat. About Muthoot Microfin Incorporated in 1992, Muthoot Microfin is India's fifth-largest non-banking microfinance institution by gross loans (in FY23). It primarily extends small ticket loans to women in rural areas. Strengths of Muthoot Microfin Strong brand. It is the second-largest company by AUM in the Muthoot Pappachan Group, a known name in the financial services industry. Muthoot Fincorp, the group's flagship company, holds around 59 per cent stake in the company. Weaknesses of Muthoot Microfin High cost of borrowing. Its cost of borrowing stood at 10.5 per cent in FY23, the second-highest among its peers. It operates in a highly competitive market comprising various small finance banks, banks, NBFCs, and other microfinance institutions. IPO details Total IPO size (Rs cr) 960 Offer for sale (Rs cr) 200 Fresh issue (Rs cr) 760 Price band (Rs) 277-291 Subscription dates December 18-20, 2023 Purpose of issue Augment capital base to meet future growth requirements Post IPO M-cap (Rs cr) 4961 Net worth (Rs cr) 2602 Promoter holding (%) 55.5 Price/earnings ratio (P/E) 13.9 Price/book ratio (P/B) 1.9 Financial history Key financials 2Y CAGR (%) TTM FY23 FY22 FY21 NII (Rs cr) 51.2 1128 880 492 385 PAT (Rs cr) 382 357 164 47 7 AUM (Rs cr) 35.9 10867 9208 6255 4987 Borrowings (Rs cr) 46.7 7746