Muthoot Finance Limited, a Kerala-based NBFC, has raised Rs 157 crore in its first institutional round of funding from Baring Private Equity Partners India and Matrix Partners India for a minority stake in the company.
Muthoot Finance claims to be the largest gold loan company in India. The company has a loan book exceeding Rs 9,000 crore and 1,800 branches across the country. This capital infusion will further strengthen the capital base of the company. With this, the company has also transitioned from being a pure family owned business to an entity with external investors.
In one of the largest recent exits in the same space, Seqouia Capital made a 5x return on Mannapuram Finance, also a play on gold financing in India. An investment of $14 million was made in 2007 by Sequoia, which recently exited by selling its entire stake for $70 million in the open market.
Commenting on the PE investment, M.G.George Muthoot, Chairman, Muthoot Finance Limited, said: The Muthoot Group has been engaged in the business for the last 123 years and has a unblemished track record, trust and goodwill among customers and stakeholders alike. The inclusion of global investors into our midst is a significant milestone and marks a new chapter in our journey. The support from such reputed investors is an endorsement of the robust business enterprise that we have nurtured and built over our lifetimes and that of our ancestors.”
Rahul Bhasin, Managing Partner, Baring Private Equity added, "We are excited with the opportunity to partner with one of the leading enterprises in Kerala and in India. Under the able guidance of the promoter group the company has constantly innovated to deliver customer-oriented products & personalized service delivery to set new benchmarks in the gold loan industry. It is today a market leader and one of the most respected brands in financial services in India. Having been in business for last the 250 years ourselves we can appreciate the years of arduous effort required to build a brand of this stature and look forward to a long term association with the company for collectively achieving greater successes.”
According to a recent IMACS report, India is one of the largest gold markets in India with an annual demand of 700 tonnes. As of 2009, gold stock in India is estimated at around 15,000 tonnes which translates into 10% of the total global gold stock. Organised gold loans market in India is estimated at around Rs. 220-270 bn with a CAGR of ~38% from FY02-09. South India continues to account for 85-90% of the gold loans market in India, with organised gold loans portfolio translating into a marginal 0.12% of the value of total gold stock in India.
The report added that banks have also started focusing on the gold loans segment, as the segment offers attractive returns with very low levels of defaults. NBFCs have started expanding aggressively bringing the product to new areas where market potential exists.
The forte of NBFCs has been credit delivery to areas not covered by banks and financial institution(FIs). According to Pankaj Aggarwal, Analyst - NBFCs & Brokerages - "NBFCs are poised for higher growth as they cater to the segments not covered by banks & financial institutions and they know the tacit needs of retail customers much better. They still need to expand their balance sheet, resources and their distribution reach, which is region specific."