Muthoot Finance Limited: NonConvertible Debenture

ASHISH DABAS 4112006105 M.B.F. (2012-14)

Answer 1.
Public Issue: Secured and Unsecured Non- Convertible Debenture.

Face Value: Rs 1000

Issue Size: Rs 1500 Million Over Subscription up to: Rs 1500 Million ICRA/CRISIL Rating:- AA-/Negative Designated Stock Exchange: BSE Minimum Subscription: 75%

Features: An option to retain over-subscription upto Rs. 1,500 million for issuance of additional NCDs aggregating to a total of upto Rs. 3,000.00 million.
Unsecured NCDs are Subordinated Debt and will be eligible for tier II Capital.

Strengths: Secured by a Collateral.

Instruments with this rating are Considered to have high degree of safety Regarding Timely Servicing of financial obligations. Such Instruments carry very low credit risk. No restrictions on transfer ad transmission of NCDs.

Weakness: Negative outlook continues due to abnormal gold price volatility coupled with disbursements at higher-than-expected loan-to-value ratios. The fund requirement and deployment mentioned in the Objects of the Issue have not been appraised by any bank or financial institution. There are other lenders and debenture trustees who have pari passu charge over the Security provided.

Answer 2.
Industry Type: Gold Loan
PAT of Rs.1,004 crore, net worth of Rs. 3736 crore, gross NPA% of 1.99%. Market share 20%-21%.
Unorganized lending market: it is assumed to be of a size of 1300 to 1400 billion rupee. NBFCs: market share is 46% trunaround time of 30 min., disbursal in cash and minimal KYC proofs. Commercial Banks: market share 48%

MARKET CAP (RS CR): 2,973.70 P/E: 3.12 BOOK VALUE (RS): 105.73 INDUSTRY P/E: 13.86 EPS (TTM): 25.61

Muthoot Finances profitability could come under pressure because of under recovery of interest on delinquent loans and volatile gold prices. The company has not revalued its assets in last five years.

Answer 3.
Competitive Strength: Market leading position in the Gold Loan business in India with pan-India reach and branch network: loan portfolio as of March 31, 2013 comprised approximately 6.32 million loan accounts, in India with Gold Loans outstanding of ` 260,003.72 million. 4,163 branches as of June 30, 2013. Strong brand name, track record, management expertise and Promoter support:

High-quality customer service and robust operating systems:

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Strong capital raising ability to fund a high profitability business model: In-house training capabilities to meet our branch expansion requirements: Weakness: RBI regulations have made its Gold Loans ineligible for securitization, making our cost of funds higher. The business requires substantial capital, and any disruption in funding sources would have a material adverse effect on our liquidity and financial condition.

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The asset liability management profile could weaken significantly over the next few months if privately placed NCD holders exercise the Put option. This will, over the next three quarters, necessitate redemption of NCDs accounting for 43 per cent of outstanding NCDs as on March 31, 2013. Companies ability to borrow from various banks may be restricted on account of guidelines issued by the RBI imposing restrictions on banks in relation to their exposure to NBFCs. Any limitation on our ability to borrow from such banks may increase our cost of borrowing, which could adversely impact our growth, business and financial condition. Restrictions placed by the RBI, recently, on private placement of non-convertible debentures by NBFCs.

Answer 4.
Altman Z Score T1 = (Current Assets-Current Liabilities) / Total Assets T2 = Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets T4 = Book Value of Equity / Total Liabilities T5 = Sales/ Total Assets Z' Score Bankruptcy Model: Z' = 0.717T1 + 0.847T2 + 3.107T3 + 0.420T4 + 0.998T5

Zones of Discrimination: Z' > 2.9 -Safe Zone 1.23 < Z' < 2. 9 -Grey Zone Z' < 1.23 -Distress Zone

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 Securities on our Secured NCDs rank as pari passu with our Companys secured indebtedness. Security provided for the Issue may not be enforceable if the security provided for the Issue is classified as Assets under the IT Act and will be void as against any claim in respect of any tax or any other sum payable by our Company. Payments to be made on the NCDs will be subordinated to certain tax and other liabilities preferred by law. In the event of bankruptcy, liquidation or winding-up, there may not be sufficient assets remaining to pay amounts due on the NCDs. If we do not generate adequate profits, we may not be able to maintain an adequate DRR for the NCDs issued pursuant to this Prospectus, which may have a bearing on the timely redemption of the NCDs by our Company. There may be no active market for the NCDs on the retail debt market/capital market segment of the BSE. As a result the liquidity and market prices of the NCDs may fail to develop and may accordingly be adversely affected.

Risks relating to the Issue and the NCDs

Cannot guarantee the accuracy or completeness of facts and other statistics with respect to India, the Indian economy and the NBFC and Gold Loan industries contained in the Prospectus. Changes in interest rate may affect the price of our NCD. Any increase in rate of interest, which frequently accompany inflation and/or a growing economy, are likely to have a negative effect on the price of our NCDs. You may not be able to recover, on a timely basis or at all, the full value of the outstanding amounts and/or the interest accrued thereon in connection with the Secured NCDs. Failure or delay to recover the expected value from a sale or disposition of the assets charged as security in connection with the Secured NCDs could expose you to a potential loss. Any downgrading in credit rating of our NCDs may adversely affect the value of NCDs and thus our ability to raise further debts.