Shriram City Union Finance NCD April 2019 Issue – Should you invest or avoid?
There are floods of NCDs now. This indicates that there is a severe cash crunch in the financial market in India. This could be even due to elections in this month. Shriram City Union Finance NCD for April 2019 would open for subscription on 5th April, 2019. It is issuing secured NCD’s now. The yield is as high as 9.75% per annum and attracting investors now. It is offering NCDs of 24 months, 36 months and 60 months tenure. Currently banks are offering low interest rates between 5% to 8% and investors are looking high interest rate NCD’s. Should you invest in Shriram City Union Finance NCD of April 2019? What are the hidden factors an investor should consider before investing Shriram City Union Finance NCD of 2019? In this article, I would provide some interesting insights about Shriram City Union Finance Ltd NCD.
About Shriram City Union Finance Limited
Shriram City has a comprehensive range of offerings comprising finance for Two Wheelers and Three Wheelers, Four Wheeler Finance (both new and pre-owned passenger and commercial vehicles), Personal Loans, Small Business Loans, and Loan against Gold. This has made Shriram City a dominant player in the field and the only NBFC to offer such a wide range of products under one roof.
Shriram City Union Finance NCD April 2019 Issue details
Shriram City Union Finance is issuing secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 100 Crores with an option to retain another Rs 650 Crores over subscription totaling to Rs 750 Crores. It comes with 8 different options, which contains 24 months, 36 months and 60 months tenure NCDs.
What are Non Convertible Debentures?
If you would like to know more about NCDs, you can check this video.
About Shriram City Union Finance April 2019 Secured NCD
They are offering secured NCD’s now in April 2019. The NCDs would constitute secured and senior obligations of the Company and shall be first ranking pari passu with the existing secured creditors on all loans and advances/ book debts/ receivables, both present and future of Company equal to the value one time of the debentures outstanding plus interest accrued thereon, and subject to any obligations under applicable statutory and/or regulatory requirements.
Features of Shriram City Union Finance NCD of April 2019
Issue start date: 5-April-2019
Issue end date: 3-May-2019
NCD’s are available in 8 different options.
The interest of these NCDs is payable monthly and on maturity.
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.
CRISIL has rated these NCDs as AA+/Stable and CRISIL rated them as AA/Stable The ratings of the NCDs by CARE and CRISIL are considered to have a high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
AK Capital Services and Edelweiss Financial Services are the lead managers for this issue.
Here are the interest rates on the April 2019 NCD’s of Shriram City Union Finance
What is the issue break-up?
Institutional Portion – 10% of the issue
Corporate Portion – 10% of the issue
HNIs – 40% of the issue
Retail Investors – 40% of the issue
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How is the company doing in terms of Financials?
Here are the financials:
1) Its revenues are at Rs 4,435 Crores in FY2017 to Rs 5,102 Crores in FY2018. Its revenues for 9 months ended Dec-2018 are at Rs 4,343 Crores.
2) Its profits are at Rs 556 Crores in FY2017 to Rs 664.7 Crores in FY2018. Its profits for 9 months ended Dec-2018 are at Rs 737 Crores.
3) Net NPA is at 3.43% for FY2018 compared to 1.79% in FY2017. Its FY19 nos are not available.
Why to invest?
1) This is a Leading NBFC company in India.
2) Attractive interest rates where one can get 9.75% yield.
3) It is issuing secured NCDs which are safe to invest compared to other unsecured NCDs.
Why not to invest in Shriram City Union Finance April 2019 NCD?
1) Low credit rating from CRISIL and CARE.
2) Its NPA is highest in the NBFC industry.
3) They are affected by volatility in interest rates for both their lending and treasury operations, which could cause their net interest income to decline and adversely affect their return on assets and profitability.
4) Their business requires substantial capital, and any disruption in funding sources would have a material adverse effect on their liquidity, cash flows and financial condition.
5) If they are unable to manage the level of NPAs in their loan assets, their financial position and results of operations may suffer.
6) High levels of customer defaults could adversely affect their business, financial condition and results of operations their business is subject to various regulatory and legal requirements governing the banking and financial services industry in India. Also, future regulatory changes may have a material adverse effect on their business, results of operations and financial condition.
7) They and their Subsidiary are subject to periodic inspections from RBI and NHB, respectively. Noncompliance with RBI or NHB observations may have a material adverse effect on their and their Subsidiary’s business, financial condition or results of operation.
8) They may not be able to accurately appraise or 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, which could adversely affect their business and results of operations.
9) Since they handle high volumes of cash and gold jewellery in a dispersed network of business outlets, they are exposed to operational risks, including employee negligence, fraud, petty theft, burglary and embezzlement, which could harm their results of operations and financial position. Further, their employees may be the target of violent crime, such as thefts and robberies, which may adversely affect their business, operations and their ability to recruit and retain employees.
10) Their subsidiary, Shriram Housing being an HFC, has significant exposure to the real estate sector and any negative events affecting this sector could adversely affect their business and result of operations.
11) You can refer all risk factors in the Final prospectus of the company.
How to apply Shriram City Union Finance NCD Issue of 2019?
You can apply these NCDs in demat form only. If you have demat account, you can login to your account and go to IPO/NFO/NCD section and apply for the same. The process of applying NCD would be through ABSA (Your amount would be blocked initially and upon allotment, your amount would be deducted and NCD allotment would be done, else your amount would be unblocked) You can reach out to any of the lead managers websites to know more details on how to apply them.
How Shriram City Union Finance April 2019 NCD are taxed?
Since you need to apply through the demat form only, there would not be any TDS on the interest received the NCD’s. It is immaterial whether the company would deduct TDS or not, one has to declare the interest in their income tax returns and pay income tax based on the individual tax bracket.
When this Shriram City Union Finance NCD of 2019 would get listed on BSE?
These Shriram City Union Finance Limited NCDs of April, 2019 would get listed after 6 working days from the date of closure. Means it would get listed approx. On 14th May, 2019 assuming that it would continue till 3rd May, 2019 i.e. the last date of subscription. If it is subscribed earlier and subscription closes, it would get listed after 6 days from such closure.
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Should you invest in Shriram City Union Finance NCD of April 2019?
Refer my earlier articles about NCD’s and you would get the answer. You should ask few questions before you want to invest in these NCDs.
1) Though Shriram City Union Finance is offering secured NCDs, we are seeing that NBFC companies are delaying the interest payment due to the liquidity crunch in the company. Do you want to invest in such NCD’s then?
2) These NCD’s are for 24 months, 36 months and 60 months tenure. Do you want to park your money in high risk NCD for 5 years? We do not know how the company would perform beyond 3-5 years, hence you should always invest in short term NCDs. You can look for 24 months or 36 months secured NCDs as these are for short term and they are secured in nature.
3) Shriram City Union Finance NCD offers yield up to 9.75% interest per annum, however is high risk. If you are a high risk taker, investing in some of the largecap mutual funds or aggressive hybrid mutual funds may be some of the best investment options that can fetch you around 15% annualised returns.
Conclusion: Shriram City Union Finance NCDs offers high interest rates. Secured NCDs are somewhat better compared to unsecured. If you are a high risk taker and willing to invest in such companies even after IL&FS Scam, you can consider investing in Secured NCDs for 24 months or 36 months tenure NCDs. However, you should be willing to take the risks indicated above.
Readers, do you feel these NCDs are worth investing?
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Shriram City Union Finance NCD April 2019 Issue Review