Muthoot Microfinance to raise Rs 500 cr from PEs

Promoters of the Muthoot Pappachan group to infuse another Rs 200 cr

Kerala-based Muthoot Pappachan Group plans to raise about Rs 500 crore from private equity (PE) players to fund its microfinance subsidiary, which recently got a licence from the Reserve Bank of India (RBI).

Sadaf Sayeed, chief operating officer of Muthoot Microfinance, said while the promoters have committed to infuse Rs 200 crore, the company is talking to PE players to raise another Rs 500 crore.

The company has roped in ICICI Securities and consultancy firm EY to advise it on the fund-raising plans.

Sayeed said the money would be utilised toward setting up infrastructure, capital expenditure and fund expansion plans. Muthoot Microfinance is also eyeing for a PE funding by 2016-17, which will help double its asset book from Rs 1,500 crore to Rs 3,000 crore in two years.

The group is already into micro-lending through its flagship Muthoot Fincorp. It has a loan book worth Rs 1,500 crore under the micro-lending segment, which will be transferred to Muthoot Microfinance.

Muthoot Microfinance plans to hire 3,000 people in two years and create 5,000 jobs in the next five years. It currently operates in Kerala, Tamil Nadu, Karnataka, Gujarat, Maharashtra, Goa and Pondicherry. It will further expand its operations in states such as Odisha, Madhya Pradesh and Uttar Pradesh by the end of FY16.

The company is looking at disbursing Rs 3,000 crore in 2015-16, of which 50 per cent would be outside southern India.

The group would be looking for an Initial Public Offering in FY18. Apart from financial services such as gold loans, small and medium enterprise loans and two-wheeler loans, the Group also has interests in real estate, hospitality, auto dealerships, and health care, among others.

Muthoot group's microfinance institution (MFI) business is growing at a compounded annual growth rate of 115 per cent for the past four years.

Muthoot is the seventh largest in microfinance operations in India, according to the MFIN MicroMeter sector association quarterly. The others are Bandhan, SKS, Janalakshmi, Ujjivan, Equitas and Satin.

PE deals in the microfinance sector are on the rise, with the segment recording the highest equity inflow in the past five years.

So far in the current financial year, the sector has raised $276 million through PE deals. This excludes the $258-million equity commitment in Bandhan ($165 million from GIC and $93 million from IFC), which is set to become a bank soon.

In FY14, the segment had raised $70 million through such deals. Some of the biggest PE commitments in the microfinance segment this financial year include those for equity investment of $100 million in Ujjivan and $77 million in Janalakshmi.

PEs also invested in Uttar Pradesh-based Utkarsh Micro Finance, Delhi-based Satin Creditcare Network, and West Bengal-based Arohan Financial Services.