Muthoot Finance IPO Analysis

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Muthoot finance is quite a familiar name in the gold loan industry. They have made some descent growth in the last few years. Now they are going public and coming with their IPO. It status is RBI registered NBFC non deposit taking which helps it in fund raising. They are offering it at a price band of Rs 160-175. Issue will open on April 18 and will remain open till April 21. Its CRISIL rating is 4/5 and CRA rating is also 4/5. This indicates good fundamentals.

Gold loan industry is growing rapidly in Indian. Muthoot finance is one of the prominent players in the industry. Though there are few uncertainties regarding regime, regulations and competition from banks but muthoot’s track record goes in its favor. It has consistently expanded in the new geographies, its management has shown consistency and the benefit of being early bird in the sector has also helped them a lot.

Muthoot finance provides personal and business loan against gold. Its it has a outstanding loan of Rs13,004 crore as of nov 2010. It has a market share of 19.4 per cent. It is aiming to garner around Rs824-901 crore to fund its business. Existing PE investor will stay invested in the firm, so it is also a good sign for the investors. It has a compounded annual growth rate (CAGR) of 75.7 per cent during FY2006-2010.

Their business model of providing loan at lower interest rates and quickly opening new branches to target new customers has helped them in maintaining high growth.  There is one risk to them and that is they are getting some serious competition from banks like ICICI and HDFC. These banks are now aggressively targeting gold loan business and offering new attractive schemes.

But even in the presence of that competition, muthoot finance is able to survive and thrive rapidly.  Muthoot finance is well known for knowledge of the niche, well established system, strong profitability and asset quality. These are good indications for the investors who want to gain from the rapid growth of gold loan industry. Price band is also very attractive for the company.

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