Creation Invests Rs.130 Cr in Muthoot Microfinance

Chicago-based PE Fund Creation Investments has invested Rs.130 crore in Muthoot Microfinance, making it a significant deal in the BFSI & microfinance space after the Indian Government’s demonetization-digital-cashless economy initiatives.

With this deal, Creation Investments will hold 11% stake in Muthoot Microfin Ltd. The capital raised will be utilised to serve BoP clients and to expand business to newer geographies such as Bihar, Uttar Pradesh, Odisha, Chhattisgarh, Haryana & Punjab In addition to the 10 existing states, said Muthoot Microfin.

Muthoot also porposes to open 500 new branches in the next 3 years to expand across India and to adopt the most advanced technology to enable reach to the last mile and to make cash less transactions for micro loans. The capital will also be mainly used for expansion and investment in technology and digitization.

MML uses hands held devices to collects instalments and routs its payments via Mpesa. This promotes cash less transaction at rural villages. The investment would be used to further penetrate mobile based collection technology in rural areas.

Thomas Muthoot, Executive Director, Muthoot Pappachan Group, said, “Our overall microfinance customer base is at 13 lakh and we have provided loans to over 4 lakh rural households in FY17 till December 2016. Our financial inclusion strategy is in sync with the Government’s agenda of technology-enabled cashless disbursement. We have moved to complete bank disbursals cause of which we are able to disburse loans worth Rs. 300 crores every month.”

He said the capital raised through private equity will be used for adoption of modern technology and promoting digitization. "The microfinance business has performed well over last 6 years, and we are delighted to have Creation as a partner for growing this business from here. Promoters have committed to infuse a total of Rs. 150 crore capital to Company by March 2018,” he added.

Sadaf Sayeed, CEO, Muthoot Microfin Limited said, “Muthoot Microfin Ltd. has set a scorching pace of growth with Assets under Management growing at 122% (annualized) & profits growing at 222% (annualized) over last year and loan disbursements growing at an annualized rate of nearly 75%. Recent

Private Equity Investment values Muthoot Microfin Ltd. at Rs. 1,111 crore. Despite the recent disruption in the form of demonetisation, Muthoot said its business is growing at a growth rate of 280% and NPAs are still less than 0.60% which is a proof that economy is more resilient than what it’s made out to be.

In the next 3 months, Muthoot plans to disburse Rs. 1,000 crore of loans to clients in a 100% cashless manner. In 9 months of current financial year, it has opened 166 new branches across 10 states and plans to open 500 additional branches in the next 3 years across the country. "In coming years MML will venture into less financially penetrated states like Bihar, Chhattisgarh, West Bengal, Assam and expand operations in UP and Odisha including other states where we currently operate. Muthoot Microfin Ltd aims to reach Rs 10,000 crore of AUM by March 2020 and plans to expand its client base from 1.3 million households to 4 million households in next 3 years," said Sayeed.

Ken Vander Weele, Co-Founder and Partner at Creation Investments said, “We are excited to partner with Muthoot Microfin for its next stage of growth. We are long-term investors who will provide them with all the necessary support to achieve their mission.”

Muthoot Microfin Ltd. (MML) has grown its Asset Under Management from Rs. 653 crore in March 2016 to Rs. 1,252 crore as of December 2016, which is 122% annualized growth over previous year. MML profits have grown by 222%, PAT has grown from Rs 9.4 crore for full financial year last year to PAT of Rs 25.11 crore till end of Quarter 3 FY17. For full financial year MML PAT is projected to reach Rs 35 crore by end of March 2017. MML Loan Disbursements have shown tremendous growth. It has grown form Rs. 765 crore last FY16 to Rs. 1185 crore till end of Q3 FY17, which is a annualised growth rate of 73% . Comparing the growth for last year same quarter MML disbursement have grown by 260%. Last year cumulative loan disbursements for MML till Q3 were Rs 330 crore but now MML disburses Rs 325 crore worth of loans every month.

Adopting cash less methodology of disbursements has helped MML reduce operating cost and make disbursement process more efficient. For each rupee that MML disburses it saves 0.50 bps by disbursing loans in cash less manner. Cashless disbursements have helped MML save cost on treasury and it has also helped in eliminates risk of fraud and theft.

BMR Advisors acted as exclusive financial advisors and AZB &Partners as legal advisors to Muthoot on this transaction. Positron Consulting Services and J.Sagar & Associates acted as financial and legal advisors respectively for Creation.

[category, FINANCE]

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