Shriram Transport finance NCD of Oct-2013 issue offers 11.75%-Should you invest?
Shriram Transport Finance is issuing Secured redeemable Non Convertible Debentures (NCD’s) in Oct-2013 on coming Monday. It comes with 3 years, 5 years and 7 years option. The interest rates are as high as 11.75% per annum. In this article, I would detail about whether we should invest in Shriram Transport NCD, what are its features and the risks involved in this NCD. I also provide comparison of returns between Shriram Transport Finance NCD Vs HUDCO Tax free bonds.
About Shriram Transport Finance Ltd
Shriram Transport is part of Shriram Capital which has significant presence in commercial vehicle financing business, consumer finance, life insurance, stock broking, chit funds etc.
Shriram Transport Finance NCD – Oct-2013 issue
Shriram Transport is issuing 36 months, 60 months and 84 months NCD’s. For secured NCD the assets are backed up for principal and interest. In case unforeseen thing happening to the company, investors of NCD would still get their principal investment and interest. In Shriram Transport NCD, the immovable properties and receivables are backed up.
Shriram Transport Oct 2013 NCD features
- The NCD issue would be started from 7-Oct-2013 and would end by 21-Oct-2013.
- NCD’s are available in 36 months, 60 months and 84 months period.
- Series I, II and III indicate that Interest is payable annually and Series IV, V and VI pays the interest at maturity.
- Bond face value is Rs 1,000.
- Minimum investment is for 10 bonds means, you need to invest for minimum of Rs 10,000. Beyond this you can invest in multiples of 1 bond.
- These NCD bonds would be listed in NSE and BSE. Hence these are liquid investments.
- NCD’s are reserved as below.
- 50% reserved to retail individual investors up to Rs 5 Lakhs.
- 30% reserved to High net worth individuals (HNI’s) for Rs 5+ Lakhs.
- NCD’s can be invested through Demat account or Physical form.
- Non-Resident Indians (NRI’s) cannot invest in these NCD’s.
- The issue size is Rs 250 Crores with an option to retain Rs 250 Crores aggregating to Rs 500 Crores.
Below is the Interest rates chart
How to apply for Shriram Transport NCD?
If you have ICICI Direct.com account or Fundsindia.com, these would be offered once you login to your account. You can apply directly by downloading the application from shriramtransport website. Currently the application is not available on their website.
Shriram Transport NCD – How the returns taxed?
- If the NCD’s are purchased through demat account, no TDS would be deducted by the company.
- If the NCD’s are purchased in physical form, TDS would be deducted if interest exceeds Rs 5,000 as per tax guidelines.
- Income tax on interest would be based on individual tax slab. Means, irrespective of whether company deducts TDS or not, you should show the interest income in your income tax return and pay necessary income tax.
How the company is doing in terms of financials?
- Revenues of the company has grown from Rs 5894 Crores (FY 2011-12) to Rs 6,564 Crores (FY 2012-13) indicating a growth of 11.37%
- Profits increased from Rs 1,257 Crores (FY 2011-12) to Rs 1,360 Crores (FY 2012-13) indicating a profit growth of 8.3%.
- Non Performing Assets (NPA) of the company is 0.45% (FY2011-12) Vs 0.73% (FY 2012-13).
Why to invest?
- Company is good in terms of revenues and profits.
- These NCD’s are secured. Means in case of any unforeseen thing happening to company, investors of NCD would still get the principal. Hence it is safe to invest in such secured NCD’s up to this limit.
- Attractive interest rates of 11.25% for 36 months, 11.50% for 60 months and 11.75% for 84 months NCD.
- Shriram Transport NCD's are rated as AA+ by CARE and AA by Crisil.
Why not to invest?
- Companies into financing are little risky. Means the profits indicated now can reduce in future due to increase in interest rate payments. Due to competition, in future, it may need to reduce interest rates charged to customers and this can lower the margins.
Shriram Transport NCD Vs HUDCO Tax Free bonds
If we compare Shriram Transport NCD of Oct issue with HUDCO tax free bonds, you would see some interesting facts. If you are high tax bracket, better to invest in HUDCO tax free bonds rather than Shriram Transport NCD as post tax returns would be high in tax free bonds. If you are in 10% tax bracket, Shriram Transport NCD is good for you. Your decision would be different based on your tax bracket.
Conclusion: These Oct-2013 issue of Shriram Transport NCD’s are secured. You can safely invest in such safe investment options and get high returns. Since these are traded on stock exchanges, these are liquid investments too. Thought there are a few drawbacks, due to secure in nature, I feel you can invest in such safe investment options if you fall in low tax bracket of 10% and 20%. If you are high tax bracket of 30%, investment in HUDCO tax free bonds would be better.
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Shriram Transport finance NCD of Oct-2013