Price band for IPO fixed at Rs160-Rs175; funds from public issue will improve capital adequacy
Moneylife Digital Team
Gold financing company Muthoot Finance plans to expand its presence in northeast Indian states, by setting up more branches there soon.
"We have around 1,700 branches in south India, while in north and west India we have about 450 and 250 branches respectively. To tap the growing opportunity in the northeast states, we will set up more branches there," George Muthoot, managing director, Muthoot Group, told at a news conference in Mumbai today.
As of 30th November 2010, over 75% of the company's gold loan portfolio was from Kerala, Karnataka, Tamil Nadu, Andhra Pradesh and Pondicherry. Muthoot Finance has 97 branches in the eastern states of the country.
Muthoot Finance, the largest gold loan company in India in terms of loan portfolio, will raise around Rs900 crore from its initial public offering (IPO) that opens on 18th April. The company has set a price band of Rs160-Rs175 a share for the planned sale of 5.15 crore equity shares. At the lower end of the price band, Muthoot Finance will raise Rs824 crore, while at the upper end it could fetch Rs901.25 crore.
The IPO will close on 20th April for qualified institutional buyers and on 21st April for retail and non-institutional investors.
"We will use the IPO funds to meet capital adequacy needs and working capital," said Oommen K Mammen, chief operating officer, Muthoot Finance Limited. "In our business we need a lot of cash and the IPO funds will help us to meet that need." The company's capital adequacy is currently below the 15% mark.
The public issue will constitute 13.85% of fully-diluted post issue paid-up equity share capital of the company. After the IPO the promoters will come down to 80% from the current 93%. Four financial investors-Matrix Partners, Baring PE Partners India, Kotak India PE and Wellcome Trust-own 7% stake.
Muthoot Finance gives both business and personal loans against gold ornaments and it has no plans to diversify its business. "We are in a growing market and we do not have any plans to diversify our business," said George Muthoot.
As of November 2010, the company holds 97 tonnes of gold. Non-performing assets are below 4%, Mr Mammen said.
The maximum tenure for a gold loan is one year, while the average tenure is three to six months. The current cost of borrowing is 9.5%. "The cost of borrowing currently is 9.5%, while we offer loans starting at 12% with a regulatory cap of 30% on the upper limit," Mr Mammen said.
HDFC Bank, ICICI Securities and Kotak Mahindra Capital Company are the book running lead managers for the Muthoot Finance public issue.