SREI Infra
By Geetanjali Kedia
Introduction:
Kolkata head-quartered SREI Infrastructure Finance has entered the debt capital market with a public issue of secured redeemable non-convertible debentures (NCD) of face value Rs. 1,000 each to raise Rs. 75 crore with an option to retain an over-subscription of Rs. 75 crore, aggregating to Rs. 150 crore.
Issue Details:
To open on 9th May 2014 and will close on 19th May 2014 (updated from 9th June 2014 earlier), 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 thereafter.
Rating: Unchanged from its previous issues in FY13 (April, August and December), ‘AA-’ by CARE and ‘AA’ by BRICKWORK indicating high degree of safety for timely servicing of financial obligations.
Listing: On BSE and NSE with one NCD comprising a trading lot. NCD would be issue on both demat and physical form to retail investors. To institutional and non-institutional investors, allotment is only in the demat form and trading on the exchanges is also compulsorily in demat form.
What’s on offer: The NCD issue has 6 investment options for individuals/HUF and 3 for institutional and other investors, as under:
| Particulars | Series I | Series II | Series III | Series IV | Series V | Series VI |
| Tenure | 3 years | 3 years | 3 years | 5 years | 5 years | 5 years |
| Investors who can apply | All | All | Only Individuals | All | All | Only Individuals |
| Type of Security | Only Demat | Demat or physical | Demat or physical | Only Demat | Demat or physical | Demat or physical |
| Frequency of interest payment | Monthly | Annual | Cumulative | Monthly | Annual | Cumulative |
| Coupon Rate (% pa) |
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| 11.40% | 12.00% | NA | 11.40% | 12.00% | NA |
| 10.70% | 11.25% | NA | 10.95% | 11.50% | NA |
| Effective Yield (% pa) |
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| 12.00% | 12.00% | 12.00% | 12.00% | 12.00% | 12.00% |
| 11.23% | 11.25% | NA | 11.51% | 11.50% | NA |
| Redemption Amount (per NCD) |
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| Rs. 1,000 | Rs. 1,000 | Rs. 1,405.40 | Rs. 1,000 | Rs. 1,000 | Rs. 1,762.90 |
| Rs. 1,000 | Rs. 1,000 | NA | Rs. 1,000 | Rs. 1,000 | NA |
Company Background:
SREI Infrastructure Finance provides financial products and services for infrastructure development and construction. For FY13, consolidated total income stood at Rs. 3,110 crore with PAT of Rs. 263 crore and AUMs of Rs. 33,330 crore, as of 31st March 2013. However, its asset quality deteriorated sharply, with gross NPAs surging to 2.77% from 1.58% of 31st March 2012, and net NPAs nearly doubling to 2.30%, from 1.18% a year ago. Even as of 30th September 2013, NPA situation did not improve with gross NPAs high at 2.91% and net NPAs at 2.37% Thus, there is considerable stress on the company’s books. For first nine months of FY14, company’s consolidated total income was Rs. 2,392 crore and PAT Rs. 136 crore with AUMs of Rs. 34,754 crore.
Rate of Return:
The company is offering 12% yields to individual investors for both 3 and 5 years tenure across different modes of interest payments. While this may be attractive bank FDs, the AA- credit rating is not very comforting. Plus, the bad loans stress is yet to be got under control.
12.00% pa translates into post-tax returns of 8.29%, assuming 30.90% tax rate and 9.55% and 10.79% for 20% and 10% tax brackets respectively. Thus, for individuals in 20% or 30% tax bracket, post-tax earnings are in single digits.
Recommendation:
Credit rating of AA- by CARE is not very comforting. Avoid the NCD.