Shriram Finance
Shriram Transport Finance, India’s largest commercial vehicle financing company, is entering the debt capital market with a public issue of secured non-convertible debentures (NCD) of face value Rs. 1,000 each, on 7th October 2013, to raise Rs. 250 crore, with an option to retain another Rs. 250 crore, taking the total fund raising to Rs. 500 crore.
Issue allocation: 50% reserved for retail investors, 30% for HNIs and 10% each for institutions and non-institutions
Closing date: 21st October 2013 (with option to close / extend the issue)
Listing: NSE and BSE, one NCD comprising one trading lot
Application Amount: Minimum Rs 10,000 and in multiples of Rs. 1,000 thereafter
Rating: ‘AA/Stable’ by CRISIL, ‘AA+’ by CARE, indicating high degree of safety for timely interest and principal payment
Company Background: Shriram Transport Finance, a deposit-taking NBFC with AUM of Rs. 52,717 crore as of March 31, 2013, is the only organised player in the pre-owned CV financing market, coupled with a healthy balance sheet with capital adequacy ratio (CAR) of 20.58% as of 31st March 2013, against RBI’s requirement of 15%. Company’s total income for FY13 was Rs. 7,014 crore (up 13% YoY), with net profit of Rs. 1,463 crore (up 12% YoY). Its net NPAs are just 0.8% of net loan assets in FY13, on networth of Rs. 7,338 crore. The funds raised via the NCD issue will be used for financing activities, repaying existing loans, business operations and working capital requirement. Thus, the company is fundamentally sound with a strong balance sheet.
Issue Details: Three different tenures are being offered– 3 years, 5 years and 7 years:
| Particulars | Series I | Series II | Series III | Series IV | Series V | Series VI |
| Tenure | 3 years | 5 years | 7 years | 3 years | 5 years | 7 years |
| Interest payment | Annual | Annual | Annual | NA | NA | NA |
| Coupon Rate (% pa) |
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| 11.25% | 11.50% | 11.75% | NA | NA | NA |
| 10.75% | 10.75% | 10.75% | NA | NA | NA |
| Effective Yield (% pa) |
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| 11.25% | 11.50% | 11.75% | 11.25% | 11.50% | 11.75% |
| 10.75% | 10.75% | 10.75% | 10.75% | 10.75% | 10.75% |
| Put / Call Option | None | None | None | None | None | None |
| Redemption Amount (per NCD) | ||||||
| Face Value + Accrued Interest | Face Value + Accrued Interest | Face Value + Accrued Interest | Rs. 1,377.30 | Rs. 1,723.87 | Rs. 2,177.70 |
| Rs. 1,358.79 | Rs. 1,666.63 | Rs. 2,044.79 | |||
Rate of Return: The highest rate of interest / effective yield is being offered to individual investors under Series III and Series VI option for 7 years i.e.11.75% per annum.
NCDs offer dual advantage of higher coupon rates and liquidity (being listed), making it an attractive investment option for retail investors, vis-à-vis bank FD. On a post-tax basis, Series III and VI’s 11.75% yield offers net return of 8.12% pa to those falling in the highest tax bracket. On the other hand, IIFCL tax free bonds (currently open for subscription) are offering 8.75% tax free return for 20 years, which score over the NCDs hands-down due to higher coupon and longer tenure.
Recommendation:
Current NCD issue from the Shriram group is an attractive fixed income instrument per se, but in comparison with tax free bonds, one must prefer the latter.