12.25% Muthoot Finance NCD of Nov-13-Should you invest?
After Sep-2013 NCD issue, Muthoot Finance has come with the fresh NCD issue in the form of secured and un-secured NCD’s. The interest rates are 12.25%. You can double your money in 6 years. Everything looks good. But what are the hidden factors. Should you invest in Muthoot Finance NCD 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 5 NCD’s in the past and this would be a 6th NCD issue.
Muthoot Finance NCD
Muthoot Finance is issuing secured and un-secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 300 Crores. It comes with 11 different options, which contains 400 days to 72 months tenure.
Muthoot Finance is issuing 11 options of NCD’s and 1 to 10 are in both secured and un- secured, however 11th option is unsecured.
a) 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) Muthoot Finance Unsecured NCD’s
For un-secured NCD the assets are NOT backed up for principal and interest. In case of wind-up of 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: 18-Nov-2013
- Issue end date: 2-Dec-2013
- 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 300 Crores.
- NCD ratings are CRISIL AA-/Negative by CRISIL and ICRA AA-/Negative by ICRA.
- Download Muthoot Finance NCD Prospectus:
Below are the Interest rates details.
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 1004.39 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 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 10.75% to 12.25% per annum
- You can double your money in 6 years.
Why not to invest?
- There are other good rated NCD’s which you can buy in the open market.
- The gold loan industry is slowing down. Gold prices have become volatile.
- Capital adequacy ratio as per RBI limit should be 15% and actual as on 31-Mar-2013 is 19.62% which is the outside RBI limit.
- Gold finance companies are riskier. Decline in gold prices (which happened 6 months back), can pose high risk to such business.
- Increase in NPA’s for the year ending Mar-2013 is a concern.
- Recent tax free bonds offered up to 8.92% tax free returns. For high tax bracket individuals these were good secured income.
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.
Conclusion: Owning to several negative factors, personally I would not like to recommend such risky products. If you want to invest go for Secured NCD so that you can secure your investment. Otherwise, there are better products in the market to invest. One should consider these risk factors before applying the same.
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12.25% Muthoot Finance NCD of Nov-13