11.75% Muthoot Finance NCD of Mar/Apr-2014-Can we invest?

Manappuram Finance NCD, now Muthoot Finance is coming up with the fresh NCD issue in the form of secured and un-secured NCD’sMuthoot Finance NCD of Mar/Apr-2014

After Manappuram Finance NCD, now Muthoot Finance is coming up with the fresh NCD issue in the form of secured and un-secured NCD’s. This time it increases interest rates by 0.25%. The interest rates are as high as 11.70% per annum. Last issue of NCD in Nov/Dec-2013 had an option to double your money in 72 months. Now with  revised interest rates, it has increased this to 75 months. I already provided my analysis earlier in Muthoot Finance of Nov/Dec-2013, however, I would cover important points here. Should you invest in Muthoot Finance NCD of Mar/Apr-2014 or not?

About Muthoot Finance Limited

Muthoot Finance Limited is largest gold loan company in India in terms of loan portfolio and branch network. It has already issued 6 NCD’s in the past and this would be a 7th NCD issue.

Also Read: Manappuram Secured NCD Offers 12.61% interest rate-Should you invest?

Muthoot Finance NCD

Muthoot Finance is issuing secured and un-secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 200 Crores. It comes with 11 different options, which contains 400 days to 75 month tenure.

Muthoot Finance is issuing 11 options of NCD’s and 1 to 10 are secured and 11th option is unsecured. When I was going through the prospectus it took so much time to figure out about this. This is how companies hide the critical info.

a) About Muthoot Finance Secured NCD’s

For secured NCD the assets are backed up for principal and interest. In case of anything happening to company, investors of NCD would still get their principal investment and interest.

b) About Muthoot Finance Unsecured NCD’s

For un-secured NCD the assets are NOT backed up for principal and interest. In case of anything happening to the company, investors of NCD would be paid after all settlements are done with secured NCD / debentures or any other secured loans. Comparing to Secured NCD’s, these un-secured NCD’s are riskier.

Features of Muthoot Finance NCD of Mar/Apr-2014

  • Issue start date: 10-March-2014
  • Issue end date: 10-Apr-2014
  • NCD’s are available in 11 different options.
  • Interest payable monthly, annually and at maturity depending on the option of NCD.
  • The face value of the NCD bond is Rs 1,000.
  • Minimum investment is for 10 bonds means, you need to invest for a minimum of Rs 10,000. Beyond this you can invest in multiples of 1 bond.
  • These NCD bonds would be listed on BSE. Hence, these are liquid investments.
  • Non-Resident Indians (NRI’s) cannot invest in these NCD’s.
  • The issue size is Rs 200 Crores.
  • ICRA has given a rating of AA-/Stable which indicates a high degree of safety for payment of principal and interest. Earlier NCD ratings are CRISIL AA-/Negative by CRISIL and ICRA AA-/Negative by ICRA.
  • Muthoot Finance Mar/Apr-2014 Prospectus can be downloaded from the SEBI website at this link

Here are the interest rates on the Mar-2014/Apr-2014 NCD issue of Muthoot Finance.

Muthoot Finance NCD of Mar,Apr-2014-Interest Chart

How is the company is doing in terms of Financials?

  • Revenues of the company have grown from Rs 4,549 Crores (FY 2011-12) to Rs 5,387 Crores (FY 2012-13) indicating a growth of 18%.
  • Profits increased from Rs 892.02 Crores (FY 2011-12) to Rs 1004.23 Crores (FY 2012-13) indicating a profit growth of 13%.
  • Non Performing Assets (NPA) of the company are 0.56% (FY2011-12) Vs 1.99% (FY 2012-13).

Why to invest?

  • Company is doing well in terms of revenues and profits.
  • It offers secure NCD’s also where your money is safe. Means in case of anything happening to company, investors of NCD would still get the principal and interest. Hence it is safe to invest in such secured NCD’s.
  • Attractive interest rates between 10.50% to 11.75% per annum
  • You can double your money in 6 years and 3 months

Why not to invest?

  • There are other good rated NCD’s offering high interest rates, which you can buy in the open market.
  • Gold finance companies are riskier. Decline in gold prices (which happened 9-10 months back), can pose high risk to such business.
  • Increase in NPA’s for the year ending Mar-2013 is a concern.

How to apply?

If you have demat account, you can apply through your demat broker online. These can be easily tradeable and sold at later point of time if you can take them in demat form. You can also apply in physical form by visiting the company website and downloading the application form and preparing the cheque and submitting at collection centres.

Muthoot Finance NCD Mar-2014 Vs Manappuram Finance NCD Mar-2014

A quick comparison of both these NCD’s for ready reference.

  • Credit ratings: Muthoot Finance NCD is rated as ICRA AA-/Stable whereas Manappuram Finance NCD are rated as ICRA A+.
  • Interest rates: Muthoot finance NCD offers highest interest rates of 11.50%, whereas Manappuram Finance NCD Offers 11.75%. You can double your money in 70 months with Manappuram Finance NCD where as it would take 75 months to double your money in Muthoot Finance NCD. Also Muthoot Finance NCD for 75 months is unsecured, however Manappuram NCD for 70 months is secured. Hence Manappuram Finance scores high.

Also Read: Best Gold ETF's to invest in India

Conclusion: I keep saying that while I am interested to get higher interest, I am equally interested to protect my money. I would not look for any unsecured options. I would personally prefer to invest in Secured NCD. Compared to both Muthoot Finance NCD and Manappuram Finance, I would lock my money in Manappuram Finance Secured NCD which offers safety along with higher returns. If you want to diversify your portfolio and invest in Muthoot finance SECURED NCD, you can do that, but you may compromise on less returns.

Readers, I would like to invite your views on this. Where are you parking your money  right now?

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Muthoot Finance NCD of Mar/Apr-2014


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