Assignment

ANALYSIS OF AN IPO ISSUED IN A DOMESTIC MARKET

Submitted to: Alok, RIMS

By: Jithu N.Kurias PA 1013 PGPM 2010-2012

The origins of

Muthoot Finance

can be traced back to 1939 when

[M.George Muthoot] ventured into financial services through a partnership firm under the name of Muthoot M. George & Brothers (MMG). MMG was a Chit Fund based out of Kozhencherry. In 1971, the firm was renamed as Muthoot Bankers, and had begun to finance loans using gold jewellery as collateral. In 1971, the firm was renamed as Muthoot Bankers, and had begun to finance loans using gold jewellery as collateral. The operations of Muthoot Bankers was then renamed and incorporated as Muthoot Finance in 2001. Muthoot Finance falls under the category of Systematically Important Non-Banking Financial Company (NBFCs) of the RBI guidelines. The company has more than 3,000 branches spread across 23 states of the country and is the largest gold loan company in India. Muthoot Finance is also the highest credit rated Gold Loan company in India, with a credit rating of AA- (CRISIL) and LAA-(ICRA) for its Long Term Debts and P1+ (CRISIL) & A1+ (ICRA) for its Short Term Debt Instruments.

Introduction
The Muthoot Group is a 124-year-old business house based in India. It has interests in Financial Services, Information Technology, Media, Healthcare, Education, Power Generation, Infrastructure, Plantations, Precious Metals and Hospitality. The Muthoot Group operates in 23 states in India, and has a customer base of over 25 million it is wholly owned and managed by the Muthoot Family. The Group takes its name from the Muthoot Family based in Kerala. The Company was set up by Muthoot Ninan Mathai in 1887 at Kozhencherry, a small town in the erstwhile Kingdom of Travancore (Kerala). It was then later taken over by his son M George Muthoot who incorporated the Finance division of the group which was until then primarily involved in wholesale of grains and timber. The company is now managed by the third and fourth generation of its family members. The group is headquartered in Kochi, Kerala Competitors of the this firm include Geojith BNP Financial Service Ltd, Essar India(Ltd ), India Bulls Securities Ltd , Jenson & Nicholson Financial Service Ltd , L & T Finance Holdings Ltd.

Geojit BNP Financial Service Ltd

Geojit BNP Paribas today is a leading retail financial services company in India with a growing presence in the Middle East. The company rides on its rich experience in the capital market to offer its clients a wide portfolio of savings and investment solutions. The gamut of value-added products and services offered ranges from equities and derivatives to Mutual Funds, Life & General Insurance and third party Fixed Deposits. Geojit BNP Paribas has membership in, and is listed on, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). In 2007, global banking major BNP Paribas joined the companys other major shareholders Mr. C.J.George, KSIDC (Kerala State Industrial Development Corporation) and Mr.Rakesh Jhunjhunwala when it took a stake to become the single largest shareholder.

India Bulls Securities Ltd.

India bulls Group is one of the country's leading business houses with business interests in Power, Financial Services, Real Estate and Infrastructure. India bulls Group companies are listed in Indian and overseas financial markets. The Net worth of the Group is Rs 16,844 Crore and the total planned capital expenditure of the Group by 2013-14 is Rs 35,000 Crore. India bulls Securities (ISL) is one of India's leading capital markets companies providing securities broking and advisory services. India bulls Securities also provides depository services, equity research services and IPO

distribution to its clients and offers commodities trading through a separate company. These services are provided both through on-line and off-line distribution channels. India bulls Securities is a pioneer of on-line securities trading in India. India bulls Securities in-house trading platform is one of the fastest and most efficient trading platforms in the country. India bulls Securities has been assigned the highest rating BQ-1 by CRISIL.

Jenson & Nicholson Financial Service Ltd.

The Company was incorporated on February 20, 1986 as a Public Limited Company as J & N Leasing Co. Limited. The Company obtained the Certificate for Commencement of Business on May 2, 1986 and commenced its operations in June 1986. The Company having established itself in the highly competitive market of Financial Services, has drawn up an ambitious growth plan for the future. The Company is actively involved in the business of Underwriting of Equity Shares, Convertible Debentures, Non-convertible Debentures, Bonds etc. This has been targeted as a high growth of business area.

Essar Securities Ltd

Essar Securities Ltd. captures the information on its Live Stock Price and
Volume, 52 Week High Low, Intraday and Historical Price Chart, Key Ratios, F&O Quotes, Competitors, Comparative Analysis, Buy Sell

Recommendations, Company News and Announcements, Shareholding Pattern, Key Quarterly and Annual P&L A/c items, and Community Prediction The Prices page of Essar Securities Ltd. captures the information on Price and Volume for a user defined time interval. It also contains the Live Stock Price and Volume, 52 Week High Low, Bid and Offer Price and Volume, Intraday and Historical Price Chart.

L & T Finance Holdings Ltd.

L&T Finance Holdings (L&TFH) is financial holding company which offers diverse range of financial products and services across corporate, retail and infrastructure finance sectors through its wholly owned subsidiaries L&T Finance and L&T Infrastructure Finance Company respectively. The company also provides mutual fund products and investment management services, through L&T Investment Management which is also a wholly owned subsidiary of L&T Finance.

The company has diversified presence across in various product lines financing space and offers infrastructure, retail and corporate financing services. Through its presence in high growth segments, the company is well placed to capitalize on the growth opportunities in these segment s

Analysis

Company is also considering a Pre-IPO Placement of up to 14,100,000 Equity Shares at a price of not less than Rs. 123 per Equity Share with various investors (Pre-IPO Placement). Subject to identified obligations of our Company, as disclosed in Capital Structure, the Pre-IPO Placement is at the discretion of our Company. Our Company will complete the issuance and allotment of such Equity Shares prior to the filing of the Prospectus with the RoC. If the Pre-IPO Placement is completed, the Issue size offered to the public would be reduced to the extent of such Pre-IPO Placement, subject to a minimum Issue size of 10% of the post Issue paid-up capital being offered to the public.

The Company, in consultation with the BRLMs and CBRLM, may offer a discount of up to 10% of Issue Price to Retail Individual Bidders at least two Working Days prior to the Bid/Issue Opening Date. The excess amount paid at the time of bidding shall be refunded to the Retail Individual Bidders

In case of revision in the Price Band, the Issue Period will be extended for three additional Working Days after such revision of the Price Band subject to the Issue Period not exceeding 10 Working Days. Any revision in the Price Band and the revised Issue Period, if applicable, will be widely disseminated by notification to the National Stock Exchange of India Limited (the NSE) and the Bombay Stock Exchange Limited (the BSE), by issuing a press release, and also by indicating the change on the website of the Book

Running Lead Managers (the BRLMs) and the Co-Book Running Lead Manager (the CBRLM) and at the terminals of the members of the Syndicate.

Muthoot Finance IPO Details

The size of Muthoot Finance IPO is around 900 Crore Rs. INR

The company is in the business of Gold Loan lending, i.e. they provide loans to individuals against gold as repo security

It is a NBFC i.e. a Non-Banking Financial Company

The main reason for any company to come out with an IPO is to collect money from the public through the standard process of listing on stock exchanges.The Muthoot Finance IPO is expected to collect around 825 to 900 Crore Rs. The proceeds of this IPO will be used for providing more loans to gold owners and other general corporate expenses.

Around 825 to 900 Crore Rs is the size of the Muthoot Finance IPO.

The price band for Muthoot Finance IPO 160 to 175 Rs. per share.

The total no. of shares to be sold through this IPO is 5.15 Crore shares.

The IPO dates for Muthoot Finance IPO are from 18th April 2011 to 21

April 2011

The capital raised through this IPO will be used for providing more loans to gold owners and other general corporate expenses like capital requirements in future.

It has received a 4 out of 5 rating from Crisil & ICRA.

There are a few good points about the Muthoot Finance Company: There is a 7% stake held in the company by Private investors like Baring India, Matrix Partners India, Kotak India PE, Welcome Trust UK and Kotak Investment Advisors. That shows the good business performance and the confidence that is there in this company. The company has around 20% market share of the gold loan market which is quite impressive.

- A pan India presence in 25 different states with more than 2600 branches adds to company's strengths - A healthy outstanding advance number reported to be around 13,000 Crore Rs. and a gold deposit of around 97 tonnes The concerns are over high volatility of Gold Prices, which we've seen in the recent past and the tighter regulations which may come from RBI for such NBFC's in gold loan business. Overall, the market experts are advising the investors to apply for this Muthoot Finance IPO. ICICI Securities, HDFC Bank and Kotak Mahindra Capital are the BRLMs - Book Running Lead Managers to the Muthoot Finance IPO.

Conclusion

Muthoot Finance is in the business of lending against household used jewellery. It is the largest gold financing company in terms of AUM as well as branch network with highest concentration in South India. Muthoot Finances target audience consists of small businessmen, vendors, traders, farmers and salaried individuals, who for reasons of convenience, accessibility or necessity, avail credit facilities by pledging their gold Jewellery rather than by taking loans from banks and other financial institutions.

It meets its funding requirement by issuing non-convertible debentures (NCD) called Muthoot Gold Bonds, bank loans, subordinate debt and assignments. The gold loans offerings are usually of shorter tenure ranging from three to six months with a maximum term of 12 months.

Reference: http://www.chittorgarh.com/ipo/ipo_detail.asp?a=300 http://www.sebi.gov.in/dp/muthhootdraft.pdf http://en.wikipedia.org/wiki/Muthoot#Finance