Muthoot Finance IPO oversubscribed 24 times

Gold loan provider Muthoot Finance’s initial public offering (IPO) received an overwhelming response from investors with the issue getting subscribed over 24.47 times till 6 pm on Thursday, the last day of bidding.

The category reserved for qualified institutional buyers, for whom the bidding closed Wednesday, was subscribed 25.01 times. The final subscription figures for retail investors and non-institutional investors like corporate and rich individuals were not available till 7 pm on the stock exchange websites.

Till 6, the retail category was subscribed 8.39 times, while the NII category was subscribed over 60 times, according to market sources.

The price band for the issue was kept at Rs 160-175 a share. At the upper price band, the Kerala-based company will be able to raise Rs 901.25 crore from selling 51.5 million shares in IPO.

Earlier, Muthoot Finance had allotted about 7.73 million shares to anchor investors at Rs 160 a share. The list of anchor investors included Citigroup Global Markets Mauritius, Abu Dhabi Investment Authority — Ganges, Goldman Sachs India Fund, Baring India Private Equity Fund III and Birla Sun Life Trustee Company, among others.

“We like Muthoot for its dominant position in the niche gold loan market, generating net interest margins of over 10 per cent, return on equity of over 30 per cent, with huge growth potential and low default risk,” Edelweiss analysts had said in their IPO note recommending clients to subscribe for the issue.

“Highly experienced and quality management provides comfort on the ability to lever on emerging gold loan opportunity,” they had added. Muthoot Finance is India’s largest gold financing firm with a market share of 18-20 per cent. Its assets under management stood at Rs 13,000 crore as on November 2010. As of February 28, the company had 2,611 branches.

Muthoot’s leadership position in the gold loan finance business and fair appetite among investors for banking and non-banking financial companies (NBFCs) were the key reasons behind the success of Muthoot’s IPO, said V Jayasankar, executive director at Kotak Mahindra Capital, which was one of the book running lead managers for the issue. Analysts expect Muthoot stock to trade at a premium to its competitor Manappuram’s shares.

“Manapuram, the second-largest player (one-third of Muthoot’s size) in the gold loan market, is trading at 2.2 times its FY12 estimated book value per share. On a very conservative basis, on the upper side of the band, we expect Muthoot stock to trade at a multiple of 3.2 times its FY12 estimated book value per share of Rs 68,” said Yoesh Hotwani, analyst at Padmakshi Financial Services, in a note to clients. The brokerage has set a year’s target of Rs 220 a share for Muthoot stock. Apart from Kotak, ICICI Securities was also the book running lead manager to the issue, while HDFC Bank was the co-book running lead manager.