'Subscribe' to Muthoot Finance IPO for listing gains: Ajcon Global

MUMBAI: Ajcon Global has recommended clients to ‘Subscribe’ to the initial public offering of Muthoot Finance for listing gains.

“We believe the stock valuation of P/BV – 3.2x at the upper end of the price band of Rs 175 is justified, because of the following reasons,

a) MFL being the market leader in gold financing business,

b) Early mover advantage in gold financing business and strong brand in southern India,

c) Strong fund raising capabilities at competitive rates,

d) Diversifying presence in northern and western parts of the country,

e) CRISIL and ICRA rating of 4, indicating above average fundamentals,

f) Larger presence (2,611 branches) with a higher scale in terms of gold loan portfolio of Rs.128.9bn as compared to its peer Manappuram General Finance with
1,800 branches and gold loan portfolio of Rs. 65 billion,

g) No offer for sale by PE players and preferential allotment to private equity players (Matrix Partners India Investments, LLC and The Wellcome Trust) on September 23, 2010 at Rs 173.5 instills confidence and provides a comfort on the valuation front.

We recommend ‘SUBSCRIBE’ to the issue for short term listing gains.

Muthoot Finance has entered the primary market to raise between Rs 824 crores to Rs 901 crores by issuing shares in the price-band of Rs 160-175 per share.

ICICI Securities and Kotak Mahindra Capital are the book running lead managers to the issue.