Muthoot FinCorp IPO

About Muthoot FinCorp IPO

The board of Muthoot FinCorp has just approved an IPO of ₹4,000 crore. The IPO will entirely be a fresh issue of shares, with no offer for sale (OFS) component. The IPO is intended to raise fresh funds for the company to enable further on-lending. Lending companies need to maintain adequate capital buffers in tandem with the expansion of their asset book. That is the main purpose of the proposed IPO.

Muthoot FinCorp is part of the same Muthoot group but a different branch of the group. Muthoot FinCorp is actually part of the Muthoot Pappachan group, while the other gold loan company (Muthoot Finance) is part of The Muthoot Group. Muthoot FinCorp operates entirely as a different entity from Muthoot Finance, although they are into the same line of business.

Muthoot FinCorp mainly derives its income from interest on loans. Its product portfolio includes gold loans, small business loans, two-wheeler loans, microfinance etc.

Objectives of Muthoot FinCorp IPO

The Muthoot FinCorp IPO will entirely be a fresh issue of shares as per the board approval.

• Raise the capital adequacy buffer of the Muthoot FinCorp group
  
• Enable the company to expand its asset book
  
• Expand into new lending areas of business
  
• Other corporate expenses
  

Industry Outlook

The Indian gold loan industry has, for long, been in the unorganized segment. Companies like Muthoot group and the Indian banks enabled easy lending against gold. Today, the organized gold lending industry is estimated at over ₹4 lakh crore (approximately ₹4 trillion). Regarding the unofficial segment, it is estimated to be as large as the organized segment, although its size has been reducing in recent times. Indian households are estimated to have gold holdings of nearly 27,000 tonnes making it a lucrative market for gold loans.

Today, the organized gold loan industry in India is classified into the banks and the specialized NBFCs. The banks are estimated to have a market share of around 60% while the specialized NBFCs like Muthoot, Manappuram, IIFL Finance etc are estimated to have a market share of around 40%. With the rising prices of gold in the last few years, it has become lucrative for borrowers to raise more money on the same quantum of gold. This has led to rapid expansion of the gold lending business in India. Company Information

As of end of FY25, Muthoot FinCorp had total AUM of ₹32,055 crore and revenues of ₹5,551 crore. For FY25, the company saw 46.2% growth in AUM, 38.2% growth in revenues, and 39.9% growth in PAT. It has a healthy ROE at 22.02%, up 363 bps compared to FY24. Traditionally, Muthoot FinCorp secured nearly 98% of its revenues from gold loans. However, now the share of non-gold business like business loans and SME loans have gone up to 15%, derisking the model.

For participating in the growth of digital gold lending, Muthoot FinCorp has also tied up with several new-age fintechs to expand the digital side of the gold lending business. As of FY25, the company has a comfortable capital adequacy ratio of 19.5%, of which 15.9% comprises of Tier-1 capital.

Strengths of Muthoot FinCorp

• It has a huge physical network of over 3,781 branches, largely in non-metro areas
• With the rising prices of gold, it has become a lucrative business for Muthoot FinCorp
• The company has maintained LTV ratio at under 60%, well below RBI mandate of 75%
• The asset quality has been steady with net NPAs just above 1%
• The company has diversified its revenue sources, derisking its future

Risks of Muthoot FinCorp IPO

• Volatility in collateral (gold) value is the biggest risk for Muthoot FinCorp
• Its LTV is vulnerable to a sharp fall in gold prices, which is a trend we have seen in the past
• Gold loans are strongly regulated business, with RBI monitoring the business closely
• Competition from PSU and private banks is a big risk due to cost of funds
• Despite the reduction, the share of unorganized sector is a risk, in smaller towns
• There is an asset liability mismatch risk for Muthoot Fincorp as borrowings are longer
• IPO needs to go through multiple approvals and makes it more accountable
• Some of its recent forays into microfinance have been relatively risky by past experience
• Even with the best of efforts, the gold business is vulnerable to frauds

Anchor Investor Bidding Date TBA

IPO Registrar and Book Running Lead Managers

IPO Registrar: TBA
Book Running Lead Managers: TBA

Business Model

Muthoot FinCorp is one of India’s leading gold lending companies. In recent years, the company has also diversified into other areas like business funding and microfinance. To adapt the new digital mode of lending, Muthoot FinCorp has also tied up with leading digital fintech players to enable on their platform. This has given them a phygital edge.

Company Growth Trajectory

The total income of Muthoot FinCorp stood at ₹5,551 crores in FY25, up by 38.22% from ₹4,016 crores in FY24. Over the two-year period from FY23 to FY25, total income grew by 59.0% from ₹3,491 crores. The firm's improved performance was visible in the 39.86% year-on-year growth in net profits to ₹787 crores in FY25, up from ₹563 crores in FY24. Between FY23 and FY25, Muthoot FinCorp has also improved its return on equity (ROE) from 17.2% to 22.0%.

Market Position

Muthoot FinCorp is a key player in the gold lending segment and part of the Muthoot Ecosystem. It operates distinct from Muthoot Finance. To derisk its business model, the company has also forayed into new areas like microfinance, business lending etc.

How to Apply for the Muthoot FinCorp IPO?

• Step 1: Log in to your Kotak Neo Demat account to access IPO investments. Next, select the current IPO section.
• Step 2: Specify IPO details. Enter the number of lots and the price you wish to apply for.
• Step 3: Enter UPI ID. After entering your UPI ID, click submit. This will place your bid with the exchange.
• Step 4: Mandate Notification. Your UPI app will receive a mandate notification to block funds.
• Step 5: Approve Request. Your funds will be blocked once you approve the mandate request on your UPI.