Greater Pacific Capital invests $50 mn in Muthoot Microfin's expansion plan

Company plans public offering in 2-3 yrs, targets AUM of Rs 10,000 cr

Muthoot Microfin Ltd (MML), a unit of Muthoot Pappachan Group, has received about Rs 375 crore ($50 million) as equity capital from institutional investor Greater Pacific Capital to support its business growth plans. There is an option for infusion of additional $34 million, subject to RBI approval.

Sadaf Sayeed, Chief Executive Officer, MFL, said with this round of funding, the capital adequacy ratio is expected to rise above 30 per cent. The capital adequacy was about 22 per cent in September 2021.

The company will look to double assets under management (AUM) from Rs 5,000 crore ($670 million) currently to Rs 10,000 crore ($1.3 billion) over the next 2-3 years.

It plans to open 500 new branches to increase our presence in our existing markets and selectively expand to additional states. This funding will allow us to support and empower an additional 1.5-2 million more low-income households, he said.

It is adding a new territory, Uttarakhand, to its business network. A large portion of business will come from the north–Uttar Pradesh, Jharkhand, Bihar, etc. “While there are elections in UP and Uttarakhand, the company has not faced any issues so far in terms of loan waiver in poll-bound states,” he said.

Last month India Ratings had upgraded MML’s bank loans and debt Instruments from “A-” to “A’. The Outlook is Stable. The upgrade reflects the expectation of strengthening the capital base enabling stronger buffers to absorb shocks as well as expansion of franchise.

Majority shareholders will remain promoters in MML, which will continue to hold about 75 per cent stake after the capital infusion. The parent group plans to divest an additional stake possibly through an initial public offering in the next two-to-three years, the rating agency said.

Referring to business, Sayeed said the revival has been much faster this time (during the second wave of Covid-19) than the first wave.

"Last year (FY21) almost six months of business was lost. In the current year (FY22), the lockdown was staggered and there was no moratorium, so we could start business immediately," Sayeed said.

Asset quality remained under pressure due to the first and second wave-induced lockdowns with 90 dpd at 9.1 per cent of AUM level as of September 2021. Furthermore, MML has 11 per cent of the portfolio between 0-90 dpd and has restructured book of Rs 680 crore as of September 2021.