Manappuram Fin
By Geetanjali Kedia
Introduction:
Manappuram Finance, a non-deposit taking NBFC and India’s leading gold loan company, has entered the debt capital market on 30th December 2013, with a public issue of secured 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:
Closes on 20th January 2014, 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. Neither any put-call option nor any lock-in period.
Rating: ‘A+/Negative’ by CRISIL indicating adequate degree of safety for timely servicing of financial obligations and carrying lowest credit risk.
Listing: On BSE with one NCD comprising a trading lot. NCD would be issued in both demat and physical form, while traded only in the demat form.
What’s on offer: The NCD issue has 11 investment options as under:
| Particulars | Series I | Series II | Series III | Series IV | Series V | Series VI | Series VII | Series VIII | Series IX | Series X | Series XI |
| Tenure | 400 days | 2 years | 2 years | 2 years | 3 years | 3 years | 3 years | 5 years | 5 years | 5 years | 5 years & 10 months |
| Frequency of interest payment | Cumulative | Monthly | Annual | Cumulative | Monthly | Annual | Cumulative | Monthly | Annual | Cumulative | Cumulative |
| Coupon Rate (pa) | NA | 11.50% | 12.00% | NA | 12.25% | 12.50% | NA | 11.50% | 12.00% | NA | NA |
| Effective Yield (pa) | 11.00% | 12.13% | 12.00% | 12.00% | 12.94% | 12.50% | 12.50% | 12.13% | 12.00% | 12.00% | 12.61% |
| Redemption Amount (per NCD) | Rs. 1,121.7 | Rs. 1,000 | Rs. 1,000 | Rs. 1,254.5 | Rs. 1,000 | Rs. 1,000 | Rs. 1,424.3 | Rs. 1,000 | Rs. 1,000 | Rs. 1,762.3 | Rs. 2,000 |
*Retail investor defined as any resident individual, HUF and NRI for application upto Rs. 5 lakh.
Allocation Ratio: 50% issue reserved for retail investors. 20% each reserved for HNIs and non-institutions, while balance 10% for institutional category.
Company Background:
Manappuram Finance has assets under management of Rs. 9,202 crore as of 30th September 2013, comprising of 16 lakh customers served through a network of 3,293 branches. For H1FY13, company disbursed loans worth Rs. 9,450 crore and earned total income of Rs. 1,137 crore, resulting in net profit of Rs. 123 crore on equity of Rs. 168 crore. With networth of Rs. 2,521 crore, company earns of the highest NIMs in the industry of 11.78% with gross NPAs of Rs. 92 crore (1%) and a very healthy capital adequacy ratio (CAR) of 26.01%. Thus, it enjoys a sound financial position.
Rate of Return:
Series V offers the highest per annum effective yield of 12.94%. However, its tenure is on the lower side of 3 years. Adjusting for highest tax bracket of 30.90%, the net returns are 8.94%. While this may seem attractive vis-à-vis bank FD, it is not advisable in relation to the ongoing tax free bonds of PSUs.
The highest tenure of NCDs in the current issue is of 70 months or 5 years and 10 months, which is yielding 12.61% pa which results in tax-adjusted returns (highest bracket of 30.90%) of 8.71% pa, which is not favourable vis-à-vis tax free bonds. National Housing Bank’s tax free bonds offer 9.01% tax free interest for 20 years, which scores on both the counts – higher tax adjusted returns as well as longer tenure.
Moreover, Manappuram’s credit ration of ‘A+/Negative’ is poor in relation to National Housing Bank’s ‘AAA’ rating.
Recommendation:
Go for National Housing Bank’s 20 year tax free bonds, instead. Manappuram fails to excite on all 3 counts – rating, tenure and coupon rate.