9.5% Shriram Transport Finance NCD June 2018 – Should you invest?

Shriram Transport Finance NCD June 2018 Review-minShriram Transport Finance NCD June 2018 – Should you invest?


Shriram Transport Finance NCD Issue would open for subscription on 27th June, 2018. Shriram Transport Finance NCD offers 9.5% interest rates. These are Secured NCDs. When interest rates are low, high interest rate NCDs from Shriram Transport Finance would definitely attract investors who want to invest for short term to medium term. These secured NCDs are offered for 3 years, 5 years and 7 years tenure and comes with 7 different options. Should you invest in Shriram Transport Finance NCD June 2018? What are the risk factors one should consider before investing in such high risk NCDs?

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About Shriram Transport Finance Limited


They are one of the largest asset financing non-banking finance companies (NBFC) in the organized sector in India that cater to first time buyers and small road transport operators for financing pre-owned commercial vehicles. In addition, they provide commercial vehicle finance for new commercial vehicles. They are among the leading NBFCs in the organized sector of the commercial vehicle industry in India for FTBs and SRTOs. They also provide financing for passenger commercial vehicles, multi-utility vehicles, three wheelers and tractors as well as ancillary equipment and vehicle parts, finance, such as loans for tires and engine replacements, and provide working capital facility for FTBs and SRTOs. They offer financial services to commercial vehicle operators, thereby providing comprehensive financing solutions to the road logistics industry in India.

What are NCD Bonds?


If you want to more about NCD bonds, you can view this NCD video.

Features of Shriram Transport Finance NCD June 2018


Issue start date: 27-June-2018

Issue end date: 20-July-2018

NCD’s are available in 7 options. It offers NCD for 3 years, 5 years and 10 year tenure.

Coupon interest rates are between 8.93% to 9.5%.

Senior Citizens would get 0.35% extra interest rate.

NCD Holders holding Series I, Series II, Series III, Series IV and/or Series V NCDs, who fall under Category III or Category IV on the relevant Record Date, shall be eligible for an additional incentive of 0.10% p.a. for the interest payable for NCDs under Series I, Series II, Series III, Series IV and/or Series V on the respective Interest Payment date

These are secured NCDs.

Interest payable every month, every year and on a cumulative basis depending on the option chosen by the investor.

The face value of the NCD bond is Rs 1000.

Minimum investment is for the 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/NSE. Hence, these are liquid investments.

NRI’s cannot apply to this NCD subscription.

These NCD’s are rated as CRISIL AA+/Stable by Crisil Ratings and IND AA+ Outlook b IND Ratings.

The base issue size is Rs 1,000 Crores with an option to retain over-subscription up to is Rs 5,000 Crores.

JM Financials and Trust Investment Advisors are Lead managers to the issue.

Shelf Prospectus can be downloaded at this link on BSE

Interest rates of Shriram Transport Finance NCD June 2018


Shriram Transport Finance NCD June 2018-Interest Rates-min

*NCD Holders holding Series I, Series II, Series III, Series IV and/or Series V NCDs, who fall under Category III or Category IV on the relevant Record Date, shall be eligible for an additional incentive of 0.10% p.a. for the interest payable for NCDs under Series I, Series II, Series III, Series IV and/or Series V on the respective Interest Payment date.

How does the yield look like?


Shriram Transport Finance NCD June 2018-Yield computation-min

How the NCD issue is allocated to various investors?


1) Retail Portion – 40% of the issue

2) HNI – 40% of the issue

3) Qualified Institutional Portion – 10% of the issue

4) Corporate Portion – 10% of the issue

What are the credit ratings for these NCDs?


The Secured NCDs have been rated by Crisil as AA+/Stable.

The Secured NCDs have been rated by IND AA+; Outlook Stable.

When Shriram Transport Finance NCD June 2018 is proposed to be listed on stock exchanges?

The NCDs are proposed to be listed on BSE and NSE. The NCDs shall be listed within 12 Working Days from the date of the Issue Closure.

How is the company doing in terms of profits?


Its consolidated profits are as below:

Year ended Mar-2016 – Rs 1,183.6 Crores

Year ended Mar-2017 – Rs 1,265.6 Crores

Year ended Mar-2018 – Rs 1,556 Crores

Shriram Transport Finance NCD June 2018 – How the returns taxed?


For investors who are applying through demat account, there would not be TDS deduction.

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 on your income tax return and pay necessary income tax.

Why to invest?


The company is earning consistent and improving margins in the last 3 years. Its EPS was Rs 51.9 for FY2016 and Rs 69.1 for FY2018.

These NCDs offer attractive interest rates where you can get yield up to 9.5% per annum.

This is secured NCD issue. In case of any non performance of the company and the company gets closed for some reason, NCD investors would get preference in repayment of capital along with interest. Hence it is safe to invest in such secured NCD options. However, it is only preference is given to NCD investors and no guarantee that entire amount would be paid-back in such cases.

Why not to invest in Shriram Transport Finance NCD June 2018?


Its financial performance is highly sensitive to interest rate volatility and its lending and treasury operations may be impacted by any volatility in such interest rates, which could cause its net interest income and margins to decline and adversely affect its return on assets and profitability.

Its business requires raising substantial capital through borrowings and any disruption in funding sources would have a material adverse effect on its liquidity, financial condition and/or cash flows.

If they are unable to manage the level of non-performing assets (NPAs) in its loan portfolio, its financial position, results of operations and cash flows may suffer.

Its business focuses on commercial vehicle finance for new and pre-owned commercial vehicles and any adverse developments in this sector would adversely affect its results of operations.

Its business is cyclical in nature. High levels of customer defaults could adversely affect its business, financial condition, results of operations and/or cash flows.

They may not be able to recover, on a timely basis or at all, the full value of collateral or amounts which are sufficient to cover the outstanding amounts due under defaulted loans and guarantee given by its Company.

There are outstanding legal proceedings against its Company, which may adversely affect its business, financial condition and results of operations.

A large part of its collections are in cash and consequently they face the risk of misappropriation or fraud by its employees.

A decline in its capital adequacy ratio could restrict its future business growth.

They have certain contingent liabilities which may adversely affect its financial condition.

Business is vulnerable to interest rate volatility and we will be impacted by any volatility in such interest rates in its lending and treasury operations, which could cause its net interest income and margins to decline and adversely affect its return on assets and profitability.

As an NBFC, the risk of default and late or non-payment by borrowers and other counter parties may materially and adversely affect its asset quality and profitability. Any such defaults, late payment or non-payments would result in provisions or write offs in its financial statements which may materially and adversely affect its asset quality, cash flows, and profitability.

Other Internal and external factors can be read at the risk factors of the NCD prospectus.

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How to apply these Shriram Transport Finance NCD June 2018?


Shriram Transport Finance NCD Issue of June/July of 2018 is available in only in demat form. You can apply online or through any of the broker website where you are maintaining a demat account. For more information on this you can refer prospectus.

Conclusion: Shriram Transport Finance Limited NCD’s of 2018 are secured in nature. Though it carries some element of risk, they are secured. Several times, I advise investors to park money in securing NCD’s as they are safer compared to unsecured NCD’s. While banks are showing some signs of interest rates increase, the interest rates are still between 6% to 7.5% per annum which are low compared to interest rates offered by these NCDs. Considering high interest rates and secured NCD’s in nature, one can consider investing in these NCD’s after assessing risk factors indicated above.  However, one should invest in them only for short to medium term. Don’t go for long term as we do not know how the company would perform in the long run.

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Suresh

Shriram Transport Finance NCD June 2018 Review

18 comments

  • Ankush Chavan

    Hello Sir,

    What does Category 3 and Category 4 mean in the following statement: “NCD Holders holding Series I, Series II, Series III, Series IV and/or Series V NCDs, who fall under Category III or Category IV on the relevant Record Date, shall be eligible for an additional incentive of 0.10% p.a.”. In the table Series 1 to 7 is shown but not Category. Thanks!

  • JITENDER AHUJA

    Sir,
    Some older issues of secured NCDs from SRF are available at huge discount as on 3rd July, 2018, at NSE: (i) Shriram Transport Finance Corporation, Series : NW, Face value : 1000/-, Mkt. rate: 512.50/-, volume : 10; (ii)Shriram Transport Finance Corporation, Series : NZ, Face value : 1000/-, Mkt. rate: 837.52/-, volume: 1956 .

    Q.1. : Should I consider buying these as anyway return is around 48% , 16.3%. Q.2.: I don’t know (a) why these two are trading so low with good volumes of transaction (at least for one of the above), (ii) when they are going to finally mature for payout by the company. Is there any way to know about these two (a,b) factors?

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