Muthoot Finance NCD-Sep-2013-Interest rate up to 12.55%-Can we invest?
India’s largest gold loan company, Muthoot Finance is issuing secured and un-secured redeemable Non Convertible Debentures (NCD’s). It comes with 11 different options, which contains 400 days to 72 months tenure. It indicates that you can double your money in 6 years. The interest rates are up to 12.55% per annum. Can we invest in Muthoot Finance NCD? What are its features and the risks involved in Muthoot Finance NCD?
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 4 NCD’s in past and this would be 5th NCD issue.
Muthoot Finance NCD
Muthoot Finance is issuing 11 options of NCD’s in both secured and un- secured.
a) Muthoot Finance Secured 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.
b) Muthoot Finance Un-Secured NCD’s
For un-secured NCD the assets are NOT backed up for principal and interest. In case unforeseen thing 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
- Issue start date: 2-Sep-2013
- Issue end date: 16-Sep-2013
- NCD’s are available in 11 different options. Option I to X are "Secured" and XI is "Un-Secured"
- Interest payable monthly, annually and at maturity depending on the option of NCD.
- Face value of the NCD bond 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 stock exchanges. Hence these are liquid investments.
- Non-Resident Indians (NRI’s) cannot invest in these NCD’s.
- The issue size is Rs 150 Crores for secured NCD’s and Rs 150 Crores for Un-Secured NCD’s.
- NCD ratings are CRISIL AA-/Negative by CRISIL and ICRA AA-/Negative by ICRA.
- Draft Prospectus:
Below are the Interest rates details.
How is company is doing in terms of financials?
- Revenues of the company has 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 1004.39 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 secured NCD’s where your money is safe. 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 between 11.50% to 12.55% per annum
- You can double your money in 6 years.
Why not to invest?
- Capital adequacy ratio as per RBI limit should be 15% and actual as on 31-Mar-2013 is 19.62% which is outside RBI limit.
- Gold finance companies are riskier. Decline in gold prices (which happened 3 months back), can pose high risk to such business.
- Increase in NPA’s for year ending Mar-2013 is a concern.
How to apply?
Majority of the stock brokers who maintain demat accounts are offering the service. You can also directly apply through ICICI Direct or any other institutions indicated in application form, if you would like to go for physical form. However you need to have these NCD's in demat form to sell them.
SREI NCD Vs Muthoot Finance NCD’s
Currently SREI secured NCD issue is also running. Though both of them would be available for next two weeks, they would be allotted on first-come-first serve basis.
Interest rates: SREI secured NCD offers 11.50% interest whereas Muthoot is offering 12.55% interest rates.
Security: SREI NCD is secured. Muthoot Finance NCD is offering Secured NCD and un-secured NCD. Unsecured NCD’s does not provide any security and investors should be little cautious about this
TDS: SREI is not deducting any TDS on interest amount. However Muthoot NCD is silent on this option, hence we are assuming that it would deduct TDS on interest payment.
Conclusion: My suggestion to investors is to invest in Secured NCD’s of Muthoot Finance. Don’t go for un-secured NCD where there is risk. Under stock market volatility where investors are thinking where to invest, secured NCD issue would definitely benefit investors.
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Muthoot Finance NCD (Sep-2013)