November 17, 2015
Mumbai
Muthoot Finance Limited
 
'CRISIL AA-/Stable' assigned to Subordinated Debt and NCD issue 
 
Rs.5 Billion Subordinated Debt CRISIL AA-/Stable (Assigned)
Rs.5 Billion Non Convertible Debentures CRISIL AA-/Stable (Assigned)
Rs.2.7671 Billion Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.2.7907 Billion Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.4.5624 Billion Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.4.5932 Billion Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.6.9328 Billion Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.2.7494 Billion Non Convertible Debentures CRISIL AA-/Stable(Reaffirmed)
Rs.2.5975 Billion Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.5 Billion Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.209.3 Million Subordinate Bond CRISIL AA-/Stable (Reaffirmed)
Rs.1.00 Billion Subordinate Bond CRISIL AA-/Stable (Reaffirmed)
Rs.232.879 Million Subordinate Bond CRISIL AA-/Stable (Reaffirmed)
Rs.437.571 Million Subordinate Bond CRISIL AA-/Stable (Reaffirmed)
Rs.40 Billion Short Term Debt CRISIL A1+ (Reaffirmed)

CRISIL has assigned 'CRISIL AA-/Stable' rating to Rs.5 billion subordinated debt and Rs.5 billion non convertible debentures of Muthoot Finance Ltd. (Muthoot Finance) and reaffirmed the 'CRISIL AA-/Stable' rating on Muthoot Finance's other long term debt instruments. CRISIL has also reaffirmed its 'CRISIL A1+' rating on the short term debt programme of Muthoot Finance.
 
The rating continues to reflect the extensive experience of company's promoters in the loan-against-gold-jewellery business, its strong capitalisation and above average earnings profile. These rating strengths are partially offset by the company's geographical concentration in its revenue profile, and its exposure to risks related to regulatory and legislative changes.
 
Muthoot Finance's promoters have a track record of over seven decades in the business of lending against gold jewellery, with a strong reputation and brand in South India, particularly in Kerala and Tamil Nadu. The rich experience gained over this period has helped Muthoot Finance design an appropriate assessment and underwriting methodology; the company constantly refines this methodology.
 
The company has strong capitalisation, with a net worth of Rs.52.6 billion and adjusted gearing of 4.0 times, as on September 30, 2015. With low asset-side risk (security of gold jewellery, which is liquid and in the lender's possession) and moderate growth outlook for the next few quarters, CRISIL believes that capitalisation of Muthoot Finance shall remain adequate over the medium term. Muthoot Finance has an above average earnings profile, supported by its high interest spreads and low credit costs. The company's return on average assets (ROA) is healthy. Although it reduced to 2.6 per cent for 2014-15 from 2.8 per cent for 2013-14, is still remains higher than that of asset financing NBFCs. However, over the past one year yields have fallen by more than 100 basis points on account of intense competition.  CRISIL believes that apart from pricing pressure on account of increased competition, volatile gold price may affect yields from delinquent portfolio.. In addition, the company's ability to maintain current profitability will also depend largely on the level of growth in advances, and control on operational expenditure.
 
Muthoot Finance has high geographic concentration in South India, which currently accounts for 56 per cent of its total loans. While the level of concentration has been declining and is much lower than that of peers, the significant regional exposure exposes the company vulnerable to economic, social, and political situation in the region. In addition, Muthoot Finance's operations remain confined to financing against gold ornaments; this segment constitutes over 99.8 per cent of the company's total advances.
 
In addition, Muthoot Finance is susceptible to changes in the regulatory and legislative framework. RBI has announced several regulations regarding lending against gold between January 2011 and 2014. These regulations have had profound impact on the business model of gold loan NBFCs, including Muthoot Finance.

Outlook: Stable

CRISIL believes that Muthoot Finance will maintain its strong capitalisation and above average profitability over the medium term. The outlook may be revised to 'Positive' if Muthoot Finance improves its competitive positioning significantly, while maintaining its asset quality and profitability. Conversely, the outlook may be revised to 'Negative' in case of steep decline in the company's asset quality, profitability or capitalisation.

About the Company

Muthoot Finance, an NBFC, was set up as a private limited company in 1997 and reconstituted as a public limited company in November 2008. It is in the business of financing against used household gold jewellery; the promoters' family has been in this business for seven decades. Muthoot Finance is the flagship company of the Muthoot group, which is also into hospitality, healthcare, media, education, information technology, foreign exchange, insurance distribution, and money transfer businesses. It had a nationwide network of 4249 branches as on September 30, 2015. The company had an advances book of Rs.249 billion, and a net worth of Rs.52.6 billion, as on Sepetember 30, 2015.
 
For 2014-15, Muthoot Finance reported a profit after tax (PAT) of Rs.6.7 billion on a total income of Rs.43.2 billion, against a PAT of Rs.7.8 billion on a total income of Rs.49.5 billion for 2013-14.
For the half year ended September 30, 2015 the company reported PAT of Rs.3.6 billion on a total income of Rs.22.8 billion.

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November 17, 2015

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