12.25% Midland Microfin Secured NCD-May/Jun-2014
Since companies are finding difficult to get funding from the general public through corporate deposits, these days they are choosing Secured NCD route. Midland Microfin Secured NCD’s have opened up for subscription from 26th May, 2014 and closes on 23rd Jun, 2014. Midland Microfin Secured Non-Convertible debentures carry interest up to 12.25% per annum and yield works out to be 12.82%. This company is in microfinance business. Should you invest in Midland Microfin Secured NCD of May-2014? What are the positives and risks involved?
About Midland Microfin Limited (MML)
Originally this company was registered as Sajan Hire Purchase Private Limited in 1988 and was engaged into hire purchase business. In 2011 the company has changed its name into Midland Microfin with an objective to do micro finance business. MML is registered with RBI and non deposit taking Non-Baning Finance Company (NBFC).
This company offers loans of Rs 5,000 to Rs 13,000 in the first cycle and increase this to Rs 15,000 by second cycle. Depending on the progress of payments, the loan amount has increased to Rs 25,000. Interest is payable fortnightly at a rate of 26% per annum. Currently this company operates in Punjab, Rajasthan and Haryana. Loan portfolio is Rs 33.2 Crores as on 31st March, 2014.
Features of Midland Microfin NCDs of May/June 2014
- Issue start date: 26-May-2014
- Issue end date: 23-Jun-2014
- NCD’s are available in 6 different options.
- Interest payable quarterly and cumulative, depending on the option of NCD.
- The face value of the NCD bond is Rs 10,000.
- Minimum investment is for 5 bonds, means you need to invest for a minimum of Rs 50,000. 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) can invest in these NCD’s.
- Care has given a rating of BBB- (Triple B minus) which indicates a moderate degree of safety for timely payment of principal and interest.
- The prospectus can be downloaded from the SEBI website at this link
Here are the interest rates on the May 2014 NCD issue of Midland Microfinance Limited
How is the company doing in terms of Financials?
- Revenues of the company have grown from Rs 8.72 Lakhs (FY 2009-10) to Rs 810.97 Lakhs (FY 2013-14).
- Profits increased from Rs 1.96 Lakhs (FY 2009-10) to Rs 42.70 Lakhs (FY 2013-14).
- Non Performing Assets (NPA) of the company are Nil.
Why to invest?
- 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 annualized yield between 11.73% to 12.82%
- Higher interest rates for women and ex-servicemen of 0.25% (Included in above table).
Why not to invest?
- Minimum investment of Rs 50,000 makes this NCD unattractive. It would be difficult for small investors to participate in this NCD issue.
- Company has generated losses for 3 years out of last 5 financial years. High interest rated NCD’s would have an impact on future margins.
- Company has negative cash flows in the last 4 years which indicate that it is not able to manage its cash flows properly and interest payment in future could be delayed.
- Company has not paid any dividend in last 5 years. Means it does not have good surplus money, which indicates no rewards to shareholders
How to apply?
You can apply only if you have a demat account. You need to login to your demat/trading account and visit fixed deposits section and subscribe.
Conclusion: With so many negative points indicated, I would personally stay away and do not invest in such NCD’s. While Midland Microfin is offering secured NCD’s, due to negative cash flows, interest payment or principal repayment could be delayed in the future. Considering low credit rating and risks indicated above, I would advise investors to stay away from such NCD’s.
Readers, are you investing in any NCD’s these days? What are your experiences on this?
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Midland Microfin Secured NCD-May/Jun-2014