Muthoot Microfin Limited (MML)

Muthoot Microfin Limited (MML) is a part of the Muthoot Pappachen Group. The company entered the microfinance business in 2010 as a division of Muthoot Fincorp Limited. In December 2011, the Group acquired a Mumbai-based non-banking financial company (NBFC), Pancharatna Securities Ltd, and renamed it MML. In March 2015, MML received an NBFC-MFI license from the Reserve Bank of India. As of March 2021, Muthoot Fincorp Limited had a 63.6% stake in MML and MFL's promoters held 23.7% in MML.

The company operates under the concept of joint liability groups (JLG) and provides microfinance loans to women. As of March 2021, it had 755 branches across 17 states with a microfinance loan portfolio of Rs. 49.50 billion. The majority of its portfolio is concentrated in Tamil Nadu, Kerala, and Karnataka.

The microfinance business is strategically important and is the second largest, in terms of AUM, for the MFL group, after gold loans. The business has stabilized and has contributed significantly to the parent's profitability over the four years through fiscal 2021. In addition, MML provides diversity to the product profile.

Credit Rating Upgradation- On 18^th Nov, India Ratings and Research (Ind-Ra) has upgraded Muthoot Microfin Limited’s (MML) non-convertible debentures (NCDs) ratings to ‘A’ from ‘A-’  with stable outlook.

The upgrade reflects Ind-Ra’s expectations of significant strengthening of MML’s capital base enabling stronger buffers to absorb shocks as well as expansion of the franchise, following the signing of the agreement of equity infusion from a private equity institution in 2HFY22; better visibility on the impact of a pandemic on the operations, additional investors in the board, and continued operational support from Muthoot Fincorp Limited (MFL); MML being a part of a resourceful group (Muthoot Pappachan Group) sharing the group’s brand name and presence of the group’s ultimate promoters on its board. The ratings also reflect MML’s diversified funding profile and adequate liquidity. The ratings also factor in MML’s moderate scale of operations, geographic concentration, and idiosyncratic and systemic risks, which are inherent to the unsecured microfinance institution (MFI) lending business. (source : India Rating)

Credit Positive:

·         Strong Parentage support from MFL

·         Long track record and experience of the promoters in the microfinance space

Credit Negative:

·         Weakening in the asset quality and earnings profile

·         Higher gearing for a prolonged period

·         Geographical concentration

MML had assets under management (AUM) of Rs 47.04 billion as on March 31, 2020, a two-year compound annual growth rate (CAGR) of 32%. The growth momentum was curbed by lower disbursements in the first six months of fiscal 2021 on account of the Covid-19 pandemic. With a gradual revival in business activity through the second half of the fiscal, the AUM increased to Rs 49.50 billion as on March 31, 2021, up 5.2% on-year.

Capital Infusion- At end-September 2021, MML’s Tier I capital adequacy ratio stood at 25.9%. Proposed private equity infusion of Rs 3.65 billion in H2FY22 (and Rs INR 1.5billion optional) to acquire 14.1% (subject to exchange rate fluctuations) stake in the company is expected to raise capital adequacy in near future.

Liquidity Position

On a standalone basis, MML has sufficient liquidity to cover total debt obligation and operating expenses. The company had cash and equivalent, including liquid investments, of Rs 3.09 billion as on March 31, 2021. In addition, the company had securitization lines of Rs 0.99 billion as on March 31, 2021. The liquidity is also supported by the steady level of collections (Rs 2.35 billion in May 2021) that the company has been reporting for the last 2-3 months. Liquidity is further cushioned by need-based and timely funding support from the parent, MFL.