Shriram Transport Finance-NCD-Returns of 11.15%-Should you invest?
Shriram Transport Finance is issuing Secured redeemable Non Convertible Debentures (NCD’s) next week. It comes with 3 years and 5 years option. The interest rates are up to 11.15% 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.
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
Shriram Transport is issuing 36 months and 60 months NCD’s. NCD are generally secured. For 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.
Features of Shriram Transport NCD
- The NCD issue would be started from 16-Jul-2013 and would end by 29-Jul-2013.
- NCD’s are available in 36 months and 60 months period
- Interest payable annually or at maturity depending on the series of NCD.
- 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 backed up with security.
- For some of the series of NCD’s, the repayment of principal is 50% of face value after 48 months and balance 50% of face value after 60 months period
- NCD’s are reserved as 1) 50% reserved to retail individual investors up to Rs 5 Lakhs. 2) 30% reserved to High net worth individuals (HNI’s) for Rs 5+ Lakhs. 3) 10% reserved to institutional investors 4) 10% reserved to Non-institutional investors
- NCD’s can be invested through Demat account or Physical form except for Series-III which should be invested only in Demat form.
- Non-Resident Indians (NRI’s) cannot invest in these NCD’s.
- The issue size is Rs 375 Crores with an option to retain Rs 375 Crores aggregating to Rs 750 Crores.
Below is the Interest rates chart.
Shriram Transport NCD's – How the returns are 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).
- Shriram capital has applied for banking license to RBI during last month which is a positive point for this group.
How to apply for this NCD?
You can download the prospectus from http://www.stfc.in/pdf/news/STFC-NCD-Issue_July-05-2013_Prospectus-PDF.rar
Demat Account holders: If you have demat account, you can apply through your broker after logging into your demat account. Please check with your broker for exact tab where the option is made available to you. At a click of button you should be able to apply this NCD
Physical form: You can apply through Lead Managers, Co-Lead Managers, Lead brokers etc., specified in the prospectus through duly filled application form + cheque for investment amount.
Why to invest?
- Shriram Transport NCD's are rated by Crisil as AA/Stable and Care as AA+. This indicates high degree of safety for timely serving financial obligations and carry low risk.
- Company is growing in terms of revenues and profits.
- NCD’s are secured. Means in case of any unforeseen thing 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 of 10.9% for 36 months and 11.15% for 60 months NCD
Why not to invest?
- Investment in Finance companies are little risky. The profits indicated now can reduce in future due to increase in interest rate payments. There would be pressure on margins.
- Due to competition, in future, it may need to reduce interest rates charged to customers and this can lower the margins.
Conclusion: 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, I feel you can invest in such safe investment options considering above points.
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Shriram Transport Finance-NCD