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In last 2-3 years, we have seen many issues of

Non-Convertible Debentures

(NCDs) by various companies. Shriram Transport Finance is the first company in this financial year to issue NCDs for public. Let us analyze the facts and understand whether you should invest in NCD issued by Shriram Transport Finance Corporation Ltd (STFCL).

 

Issue Size and period

The company aims to raise up to Rs 375 crore, with an option to retain oversubscription of Rs 375 crore, aggregating to a total of Rs 750 crore. Subscription is open for public from 16th July 2013 to 29th July, 2013 with an option to close earlier and/or extend up to a period at the discretion of the duly authorised committee of directors of the company subject to necessary approvals.

 

Face value of this NCD and minimum application size for investment

The NCDs will be issued at a face value of Rs 1,000 each, but you have to apply for a minimum of Rs 10,000 i.e. have to invest in at least 10 NCDs.

 

Credit Rating

These NCDs have been rated AA/stable by CRISIL and AA+ by CARE. The rating by CRISIL and CARE indicates high degree of safety with regard to timely servicing of financial obligations and carrying very low credit risk.

 

Objective of this issue

The funds raised through this issue will be used for various financing activities which includes lending and investments, to repay existing loans and for business operations including capital expenditure and working capital requirements.

 

Tenors and effective yields

The bonds will be issued for tenors of 36 months and 60 months with annual interest option and cumulative interest option in five different series (explained below in table). The effective yield will be in the range of 9.65 to 11.15 per cent with a maturity of 3 to 5 years.

 

Lead managers and co-lead managers to the issue

Lead managers are JM Financial Institutional Securities Private Limited, A K Capital Services Limited, HDFC Bank Limited and ICICI Securities Ltd.

 

Co-lead managers are Karvy Investor Services Ltd, RR Investors Capital Services Private Limited, SMC Capitals Ltd and Trust Investment Advisors Private Ltd.

 

Listing

The issue will be listed on both exchanges i.e. National Stock Exchange (NSE) and

Bombay Stock Exchange (BSE).

 

Business profile of STFCL

The company’s primary focus is on financing pre-owned commercial vehicles, providing finance for new commercial vehicles, passenger commercial vehicles, multi-utility vehicles, three wheelers and tractors. In addition, it also provides loans for ancillary equipments and vehicle parts finance. It provides working capital facility to first time users and small road transport operators. A promoter of the company is Shriram Capital Ltd. Recently, Piramal group acquired 10% stake in the company for Rs 650 to Rs 700 crore, valuing the company at Rs 6,500 to Rs 7,000 crore.

 

Categories of investors and reservations for investors investing in this issue

The investors are classified into four categories as follows:

 

Category I – Institutional Investors

10% of the issue is reserved for the institutional investors.

 

Category II – Non Institutional Investors

10% of the issue is reserved for the Non institutional investors.

 

Category III – High Net Worth Individuals

30% of the issue is reserved for High Net worth Individual (HNI) investors.

 

Category IV – Retail Individual Investors

50% of the issue is reserved for the retail individual investors.

 

Note:

The allotment will be done on a first-come-first served basis. NRIs, foreign institutional investors, qualified financial institutions and overseas corporate bodies are not eligible to invest in this issue.

 

Issue Structure

shriram transport finance NCD

Source: Company reports

Taxes applicable to investors

Tax would be deducted if the interest exceeds Rs 5,000. However, if you take these NCDs in the demat form, no TDS is applicable. If you hold it for long term (> 1year), you need to pay capital gains at 20% with indexation or 10% without indexation (whichever is lesser) and if you hold it for short term(up to 1 year), you need to pay short term capital gains tax as per your slab rate.

 

Financial analysis of the company

In FY13, revenue of the company increased to Rs 6,564 crore from Rs 5,894 crore in the previous year (up ~11.5%) and net profit grew to Rs 1,361 crore from Rs 1,257 crore in the previous year (up ~8.3%). Assets under management (AUM) figure stood at Rs 49,676 crore as against Rs 40,215 crore in last year (up ~25.5%). Net interest margins (NIM) increased to 3.64% as against 2.91% in FY12.

However, we observe some stress on Gross NPA’s of the company which is increasing constantly in last two years as given in below table:

 

Mar-11

Mar-12

Mar-13

Gross NPA (%)

2.66%

3.14%

3.21%

 

Recommendation

Considering strong business profile, confidence in promoters to expand the operations and financials of the company, we recommend subscription to this issue. However, allocate only 3% to 5% of total investment in fixed income class of assets to this issue. For example, if your fixed income investment is Rs 10 lakhs in total diversified portfolio then subscribe only for Rs 3 lakhs to Rs 5 lakhs in this issue.

 

  • If you are conservative individual investor then opt to subscribe in series I or II with annual interest payment.

  • In case, you are retired and require regular income then opt to subscribe in series III which gives monthly interest payment to its investors.

  • Investors with high risk taking capability can opt to invest in series III or IV.

 

Keep a constant check on the financial performance of the company throughout the tenor of your investment. These NCDs will be traded on both the exchanges; so you can exit by selling it easily on the exchange.

 

About the Author:

Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner with an experience of over 5 years in equity market and personal finance domain. The views explained by him are personal. He can be reached at

expert@investmentyogi.com

 

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