Sakthi Finance is coming up with Secured and Un-Secured NCDs now. Sakthi Finance NCD Issue would open for subscription on 13th March, 2020. Sakthi Finance is now offering up to 13.3% yield for 24 months to 62 months tenure NCDs. When interest rates are low, high interest rate NCDs from Sakthi Finance would definitely attract investors who want to invest for short term to medium term. Should you invest in Sakthi Finance NCDs of March 2020? What are the risk factors one should consider before investing in such high risk NCDs?
About Sakthi Finance Limited
They are an asset finance company with primary focus on financing pre-owned commercial vehicles. They also provide finance for purchasing infrastructure construction equipment, multi-utility vehicles, cars, jeeps and other machinery. The finances provided are secured by lien on the assets financed. Its target customers predominantly comprise Small / Medium Road Transport Operators and primarily hail from rural / semi-urban area. The SRTOs / MRTOs looks for speedy disposal of finance at competitive rates. They have identified this opportunity and positioned ourselves between the organized banking sector and local money lenders by offering the finance at competitive rate with flexible and speedy lending services to its customers. They operate primarily in the Southern region of the country mainly in the States of Tamil Nadu and Kerala through its branch network and customer service points. They have network of 49 branches, located in Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Maharashtra, Haryana and Union Territory of Puducherry. In addition to finance business, they generate power from windmills and sell the same to Tamil Nadu Electricity Board and Gujarat Urja Vikas Nigam Limited.
What are NCD Bonds?
If you want to more about NCD bonds, you can view this video.
Features of Sakthi Finance NCD March 2020
Issue start date: 13-March-2020
Issue end date: 9-April-2020
NCD’s are available in 11 different series. It offers NCD for 24 months to 62 months tenure NCDs.
Interest rates are between 9.5% to 11%. Yield works upto 13%. Banks are offering between 5.5% to 8% interest rates now.
They are offering secured NCDs + Un-Secured NCDs now.
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.
ICRA has rated these NCDs as BBB (Stable) which indicates a moderate degree of safety regarding timely servicing of financial obligations and carry a moderate credit risk.
The base issue size is Rs 100 Crores with an option to retain over-subscription up to Rs 100 Crores totaling to Rs 200 Crores.
Dalmia Securities and SKDC Consultants are the Lead managers to the issue.
What are the interest rates on these NCDs?
Here are the interest rates and coupon rates on these NCDs.
How the current NCD issue is allocated to various investors?
1) Retail Portion – 90% of the issue
2) Institutional Portion – 5% of the issue
3) Non-Institutional Portion – 5% of the issue
What are the credit ratings for these NCDs?
Here are the credit ratings of Sakthi Finance NCDs.
These NCDs are rated by ICRA as BBB (Stable) which indicates a moderate degree of safety regarding timely servicing of financial obligations and carry a moderate credit risk.
When these NCDs are proposed to be listed on stock exchanges?
The NCDs are proposed to be listed on BSE. 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 financials:
1) Its revenues are at Rs 170.5 Crores, 168.55 Crores and Rs 167.68 Crores in the financial years FY17, FY18 and FY19 respectively.
2) Its profits are at Rs 159.9 Crores, 119.2 Crores and Rs 119.6 Crores in the financial years FY17, FY18 and FY19 respectively.
3) Net NPA are at 3%, 3.32%, 2.94% and 2.46% for the period ended Mar-17, Mar-18, Mar-19 and 9 months ended Dec-19.
How interest received is taxed in Sakthi 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) These NCDs offer attractive interest rates where you can get yield up to 13.3% per annum.
2) It issues both secured and un-secured NCDs. Let us talk about their 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.
3) Sakthi Finance is leading NBFC company in India.
Why not to invest in Sakthi Finance NCD March 2020?
Here are some negative / risk factors of investing in NCDs.
1) Its revenues are on the declining trend. Its margins have declined in the last 3 years too. In future if the company revenues are falling, it would have an impact on profits and company might not be able to pay interest to the NCD holders and it can delay the repayment of the principal amount of NCD bonds.
2) The company is involved in certain legal proceedings and any adverse outcome of any proceedings being unsuccessful, it may have an adverse effect on the performance of the Company.
3) Company’s promoter directors are promoter directors of a group company, whose liabilities to some of its creditors are in default. Any adverse action taken by these creditors might affect the financial condition of its promoter directors.
4) Company’s promoter directors are promoters of the Group Company in which two of their creditors have filed petitions before the Debt Recovery Tribunal (“DRT”) for recovery of their dues. Any adverse outcome on any of the applications before DRT for recovery of dues may have an impact on the financials of its promoter directors.
5) One of its group companies has defaulted in payment to the bond holders of the Foreign Currency Convertible Bonds (“FCCB”). The Bondholders and the Trustee to the Bondholders have filed a winding up petition before the Hon’ble High Citst of Madras. In the event of the petitions, getting admitted against the group company, it might have an impact on the financials of its promoter directors, which in turn, may have an impact on its company.
6) Its financial performance is highly sensitive to interest rate volatility, which could impact its net interest income to decline and adversely affect its return on assets and profitability.
7) Its business requires raising substantial funds, by the way of borrowing, and any disruption in funding sources would have a material adverse effect on its liquidity, financial position and/or cash flows.
8) If they are unable to control or reduce the level of NPAs in its loan assets, its financial position, results of operations and cash flows may suffer.
9) Its collections in cash are in reasonably large quantum and consequently, they face the risk of misappropriation or fraud by its employees.
10) Any downgrade of its credit ratings would increase borrowing costs and constrain its access to capital and lending markets and, as a result, would adversely affect its net interest margin and its business.
11) A decline in its capital adequacy ratio could restrict its future business growth.
12) They have had negative net cash flows in the past and may have negative cash flows in the future.
13) Some of its Group Companies have incurred losses in the recent past.
14) Other Internal and external factors can be read at the risk factors of the NCD prospectus.
How to apply these Sakthi Finance NCD March 2020?
Sakthi Finance NCD Issue of March 2020 is available 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 Sakthi Finance NCD March 2020?
Company offers secured and un-secured NCDs which offer high interest rates. However, company revenues and profits are on declining trend. It has low credit ratings. Investing in such high risk NBFC companies is risky now. I would advice investors to stay away from such such high risk NCDs now.
Alternatively, one can invest in Best Multicap Mutual Funds that can provide high returns with similar risk though not guaranteed.
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Sakthi Finance NCD March 2020 offers 13.3% Yield – Review