Shriram Transport Finance NCD Jan 2020 – Review
After 5 months, Shriram Transport Finance is coming up with Tranche 2 of Secured NCDs in 2020. Shriram Transport Finance NCD Issue would open for subscription on 6th January, 2020. Shriram Transport Finance NCD offers up to 9.1% 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 2020? What are the risk factors one should consider before investing in such high risk NCDs?
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.
Issue Details of Shriram Transport Finance NCD Jan 2020 – Tranche 2
Issue start date: 6-Jan-2020
Issue end date: 22-Jan-2020
NCD’s are available in 8 different series. It offers NCD for 3 years, 5 years and 7 years tenure.
Interest rates are between 8.5% to 9.1%.
Senior Citizens would get 0.25% extra interest rate.
They are offering secured NCDs in Tranche 2.
Interest payable every month, every year and on a cumulative basis depending on the series 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.
CARE has rated these NCDs as AA+/Stable, CRISIL rated them as AA+/Stable and India Ratings as IND AA+/Outlook Stable. The ratings of the NCDs by CARE, CRISIL and India Ratings indicate that instruments with this rating are considered to have a high degree of safety regarding timely servicing of financial obligations and carry very low credit risk.
The base issue size is Rs 200 Crores with an option to retain over-subscription up to Rs 800 Crores totaling to Rs 1,000 Crores.
AK Capital Services, JM Financial and SMC Capital are the Lead managers to the issue.
Shriram Transport Finance NCD Jan 2020 Prospectus link
What are the interest rates on these NCDs?
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
What are the credit ratings for these NCDs?
Here are the credit ratings of Shriram Transport Finance NCDs.
1) The Secured NCDs have been rated by Crisil as AA+/Stable.
2) The Secured NCDs have been rated by CARE as AA+/Stable.
3) The Secured NCDs have been rated by IND AA+/Stable.
This indicates that instruments with this rating are considered to have a high degree of safety regarding timely servicing of financial obligations and carry very low credit risk.
When these NCDs are 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 cosure.
How is the company doing in terms of Financials?
Here are the standalone financials:
1) Its revenues increased from Rs 13,193 Crores in FY2018 to Rs 15,384 Crores in FY2019.
2) Its profits increased from Rs 2,460 Crores in FY2018 to Rs 2,563 Crores in FY2019.
3) Gross NPA is at 9.15% for FY2018 Vs 8.29% in FY2019.
How interest received is taxed in Shriram Transport Finance NCD?
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?
1) The company is consistently performing well in terms of revenues and margins. Profit generating companies would pay interest consistently without default.
2) These NCDs offer attractive interest rates where you can get yield up to 9.1% per annum.
3) 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.
4) Shriram Transport Finance is leading NBFC company in India that has good brand.
Why not to invest in Shriram Transport Finance NCD Jan 2020?
1) In the last 1 year, NBFC companies are delaying payment of NCD interest and other commercial papers invested by mutual fund companies.
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 2020?
Shriram Transport Finance NCD Issue of Jan 2020 is available in only in demat form. You can apply online by visiting your demat account login. For more information on this you can refer prospectus.
Should you invest in Shriram Transport Finance NCD Jan 2020?
These NCDs are secured in nature and offer high interest rates. However, investing in NCDs in NBFC companies is high risk now. Investing in NCD’s for long term of 7 years would be even more risk. Since it offers 3 years and 5 years tenure NCDs, high risk investors can invest in these NCDs. One can ignore 7 years NCDs as we do not know how the company would perform in the long run.
Alternatively, you can invest in a diversified portfolio of mutual funds that can provide high returns with similar risk though not guaranteed.
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Shriram Transport Finance NCD – January, 2020
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