NCD ISSUE - INDIA INFOLINE HOUSING
By Geetanjali Kedia
Introduction:
India Infoline Housing Finance, 98.87% subsidiary and housing finance arm of listed broker India Infoline, is entering the debt capital market for the second time this fiscal (after December 2013) with a public issue of unsecured redeemable non-convertible debentures (NCDs) of face value Rs. 1,000 each, to raise Rs. 100 crore with an option to retain another Rs. 100 crore, taking the total fund raising to Rs. 200 crore.
Issue Details: The issue opens on 12th March 2014 and closes on 24th March, with an option in company’s hands to either close the issue earlier or extend the closing. Minimum application amount is Rs 10,000, and in multiples of Rs, 1,000 thereof.
Rating: ‘AA-’ (same as earlier) by CRISIL and ICRA indicating high degree of safety for timely servicing of financial obligations.
Listing: To be listed on NSE and BSE with one NCD comprising a trading lot. NCD would be issued both in physical and demat but trading is necessarily in the demat form on the exchanges.
What’s on offer: The NCD issue has following two investment options:
| Particulars | Details | Details |
| Frequency of interest payment | Monthly | Cumulative |
| Tenure | 6 years | 6 years |
| Coupon Rate (% pa) | 12.00% | NA |
| Redemption Amount (per NCD) | Rs. 1,000 | Rs. 2,000 |
| Effective Yield (% pa) | 12.68% | 12.25% |
| Tax Adjusted Yield (% pa) |
|
|
| - 30% tax slab (@ 30.90%) | 8.76% | 8.46% |
| - 20% tax slab (@ 20.60%) | 10.07% | 9.73% |
| - 10% tax slab (@10.30%) | 11.37% | 10.99% |
Company Background:
The company is an NBFC undertaking housing and mortgage loans with assets under management (AUM) of Rs. 937 crore and networth of Rs. 301 crore, as of 30th September 2013. For FY13, its earned income of Rs. 45 crore with PAT at Rs. 14 crore while H1FY14 income stood at Rs. 39 crore with PAT of Rs. 12 crore. As of 30th September 2013, gross NPAs stood at Rs. 3.4 crore (0.46% of loan book), whereas net NPAs were 0.39%. It is adequately capitalized with Capital Adequacy Ratio (CAR) at 49.49%, against RBI’s minimum requirement of 12%.
Rate of Return:
The 12.68% yield with monthly interest payment may seem attractive for retail investment in fixed income securities, given the longer tenure of 6 years of the instrument. This is better that bank FD, as no bank is offering interest rates in double digit on longer term fixed deposits. However, unsecured nature of the instrument is a huge deterrent.
Comparing with other NCD offering currently underway, India Info’s effective yield of 12.68% pa and AA- credit rating are tad higher than Manappuram’s 12.61% pa yield and A+ rating for a secured instrument for a more-or-less similar tenure of 5 years and 10 months. Thus, Manappuram NCD is favourable vis-à-vis India Infoline Housing, as the former is secured, without a material rating and yield difference.
Also, post-tax effective return (for highest tax bracket of 30.90%) is only 8.76% pa. In comparison with ongoing tax free bonds of HUDCO, which besides carrying the PSU-tag, better credit rating, long tenures (15 and 20 years) have higher returns of 8.96%-8.98% for retail investors. Even NHB’s AAA rated 15 and 20 year bonds are offering tax-free interest of 8.90%-8.93%. However, both these PSUs have been over-subscribed till date. Among PSU tax-free bonds, IRFCL is open and still under-subscribed with AAA rating and 8.88% pa coupon for 15 years. IRFCL is not offering 20 year bonds.
Recommendation:
Being unsecured, India Infoline fails to find the comfort, despite strong financials and group patronage. Go for IRFCL’s 15 year tax free bonds, instead. India Infoline is not recommended even for 10% or 20% income tax payers. Those in the lower tax brackets may look at Manappuram NCD (read here https://www.sptulsian.com/article/78895), as an alternative to bank FD.