9.7% Shriram Transport Finance NCD Jan 2019 – Should you invest?

Shriram Transport Finance NCD Jan 2019 Review-minShriram Transport Finance NCD Jan 2019 Review


After 2 months, Shriram Transport Finance is coming up with Tranche III of Secured NCDs of 2018. Shriram Transport Finance NCD Issue would open for subscription on 7th January, 2019. Shriram Transport Finance NCD offers 9.7% 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. Should you invest in Shriram Transport Finance NCD Jan 2019? What are the risk factors one should consider before investing in such high risk NCDs?

Also Read: Mahindra Finance NCD offers 9.5% Interest Rates – Should you subscribe?

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 video.

https://youtu.be/RdHidNBAq60

Features of Shriram Transport Finance NCD Jan 2019


Issue start date: 7-January-2019

Issue end date: 31-January-2019

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

Interest rates are between 9.12% to 9.7%.

Senior Citizens would get 0.25% extra interest rate.

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. 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 which indicates that these NCDs have a high degree of safety regarding timely servicing of financial obligations and carry a low credit risk.

The base issue size is Rs 200 Crores with an option to retain over-subscription up to Rs 500 Crores totaling to Rs 700 Crores.

Edelweiss Financial Services, Axis Bank, AK Capital Services, JM Financial and Trust Investment Advisors are the Lead managers to the issue.

Shelf Prospectus can be downloaded at this link

Interest rates of Shriram Transport Finance NCD Jan 2019


Here are the interest rates and coupon rates on these NCDs.

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

Also Read: Best Mutual Funds to invest through SIP in 2019

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.

This indicate that these NCDs have a high degree of safety regarding timely servicing of financial obligations and carry low credit risk.

When Shriram Transport Finance NCD Jan 2019 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 6 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 Jan 2019– 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 9.7% 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.

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Why not to invest in Shriram Transport Finance NCD Jan 2019?


1) IL&FS scam have created confusion for investors whether to invest in such finance companies or not.

2) 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.

3) 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.

4) 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.

5) 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.

6) 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.

7) 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.

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

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

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

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

12) 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.

13) 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.

14) 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 Jan 2019?


Shriram Transport Finance NCD Issue of Jan 2019 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.

Should you invest in Shriram Transport Finance NCD Jan 2019?


One should not forget about IL&FS scam and subsequent stock market fluctuations in the Indian financial economy. Investing in such NCDs is high risk. Credit rating of companies can change at any time. Means the rating given by CRISIL or INDAA holds good only for now. This can change next minute. Fundamentally strong companies can turn to negative performance in just a few quarters. Investors should keep some pointers in mind before investing in such high risk NCDs.

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Suresh

Shriram Transport Finance NCD Jan 2019 Review

The Author

Suresh KP

Suresh KP i.e. me have written 1,800+ articles on this blog. I have done by B.Com from Osmania University and then MBA-Finance from Symbiosis University, Pune. I have over 20 years of experience in analyzing various investment options and money saving ideas. I love doing financial planning, Mutual Fund Analysis, Searching long term Stocks for wealth creation, IPOs, reviewing Insurance Products, analysing Health insurance Plans etc.

7 Comments

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  1. 1.Any YES for this issue?
    2.At time of redemption any tax for maturity amount?

  2. Hello,

    Thanks for the detailed article. I kind of liked the conclusion – particularly around the rating agency. Personally – I just don’t trust anything in this segment. (even of the NCDs are secured)

    Few Qs-

    I am just wondering if people do really invest in NCDs of private companies?

    Is there data anywhere that indicates the subscription status of previous tranches of NCD?

    How is the liquidity of these bonds in the secondary market?

    1. Hello Makrand, Yes investors do invest in NCDs of these companies. There are several NCDS which gets fully subscribed within few days of opening and they close ahead of closure date indicated. Coming to liquidity, this depends on buyers availability. In most cases there are limited investors who would buy through secondary market unless you are willing to sell at lower rate.

      1. Hello Suresh,
        Thanks for the answer.
        You’re mentioned this is their 3rd Tranch after 2 months. So – 2nd came 2 months prior and 1st even before that.

        1) What I would like to know – if there is any place where I can look how did the subscription go for the previous tranches? Was is oversub/undersub.

        2) BTW, why do companies come up with so many tranches? Is it because – previous tranches went undersubscribed or its just that they need money on a regular basis or MIX of both?

        3) Also, where can I check the current tranch live subscription status?

        1. Hello Makrand, Most of the tranches of Shriram Transport finance are oversubscribed / fully subscribed. You can check them on NSE/BSE portals as and when these are opened for subscription. the subscription %age is given every day.

  3. Suresh,

    Thanks for the detailed article.

    How can I apply for these NCDs online, as they would get allotted on FCFS basis.

    Cheers,
    Shankar

    1. Hello Shankar, These would be allotted FCFS basis. If you have demat account, you can login and through ABSA process you can apply the same. If you are not finding the link, you can approach your demat broker

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