Muthoot Microfin plans to sell 10% stake to PEs for $15M

Muthoot Microfin, the microfinance arm of the country's second largest gold loan company Muthoot Fincorp, is talking to private equity players to raise Rs 100 crore to shore up its core capital.

As part of the deal, the 128-year-old Kochi-based Muthoot Pappachan Group will dilute 10 per cent equity in the firm to the investing PE for Rs 100 crore, and will also infuse Rs 100 crore of fresh capital into the company, Muthoot Microfin chief executive Sadaf Syed told PTI.

The process will be over by February-March, he added, but refused to name the PEs citing confidentiality issues as it has already signed the term sheets with a couple of leading private equity players.

Syed said the company, set up in 2010, has grown to become the sixth largest in terms of asset size and geographical presence with loan book of around Rs 1,900 crore as of November.

Its loan book is growing at around 70 per cent, with presence in 10 states. Last year, its book grew at 85 per cent and it hopes to do better this year as well.

He further said the financial services group will use the money to shore up the capital adequacy ratio so that it can aggressively ramp up its microfinance business.

The fund infusion will also see the Muthoot Microfin getting spun off into a separate entity, he said.

The microfinance company, with 150 branches, predominantly in the south, is looking to spread its wings across the north, northeast and western region, he said, adding currently its business is primarily Kerala-centric with 45 per cent of the loan book originating from the home state.

Its next biggest market is Tamil Nadu with around 30 per cent of the balancesheet, followed by Karnataka at 12 per cent, Maharashtra with 5 per cent and Gujarat contributing 4 per cent of the business. The rest comes from other states like Madhya Pradesh and Chhattisgarh, serving over 1.3 million customers.

It also sells livelihood products and services like medical and life insurance policies, and other social impact products like water purifiers, Syed said. It also sells hybrid gold loans which offers 100 per cent value of the gold pawned but with an additional 25 per cent guarantee.

When asked about the bottomline growth, Syed said the company had a pre-tax profit of Rs 122 crore last fiscal year, and is likely to close this year with Rs 200 crore PBT and a net profit of Rs 12 crore.

The company, which lends at 24 per cent, as its cost of fund is still high at 14 per cent, has raised Rs 406 crore from banks this fiscal so far and has a sanction for Rs 150 crore for the remaining period of the year. .

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