Muthoot Finance is coming up with Tranche II secured NCD bonds Issue that would open for subscription on 11th December, 2020. Muthoot Finance Limited is leading NBFC company in India. Muthoot Finance NCD interest rates are up to 7.75% and yield works out up to 7.75%. Muthoot Finance offers these bonds for 38 months and 60 months tenure and one can get fixed income, either monthly, yearly or on maturity. Should you invest in Muthoot Finance NCD December, 2020? What are the risk factors one should consider before investing in such high risk NCDs?
About Muthoot Finance Limited
They are Systemically Important Non-Deposit Taking NBFC.
Since its formation, they have broadened the scale and geographic scope of its gold loan operations so that, as of March 31, 2012, they were India’s largest provider of Gold Loans.
For the years ended March 31, 2016, 2017, 2018, 2019 and 2020, revenues from its gold loan business constituted 98.49%, 97.95%, 97.64%, 97.32% and 96.81% respectively of its total income.
In addition to its Gold Loans business, they provide money transfer services through its branches as sub-agents of various registered money transfer agencies and also provide collection agency services.
They have started providing unsecured loans to salaried individuals and loans to traders and self-employed.
They also provide micro-finance, housing finance, vehicle and equipment finance and insurance broking services through its subsidiaries.
Issue Details of Muthoot Finance NCD December, 2020 (Tranche II)
Subscription opens on 11-December-2020
Subscription closes on 5-January-2021
NCD’s are available in 6 options. It offers NCD bonds for 38 months and 60 months tenure.
Coupon interest rates are between 6.75% to 7.75%. Yield on these bonds are up to 7.75%.
These are secured redeemable NCDs.
Interest payable monthly, yearly and on maturity depending on the option chosen by the NCD 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 within 6 working days from the issue closure date. Hence, these are liquid investments.
NRI’s cannot apply to this NCD subscription.
The base issue size is Rs 100 Crores with an option to retain over subscription up to Rs 900 Crores totaling to Rs 1,000 Crores.
Edelweiss Financial Services, JM Financials, Equirus Capital and AK Capital Services are the lead managers for the issue.
Muthoot Finance NCDs – Dec-2020 – Interest Rates
What are the credit ratings for these NCDs?
The Secured NCDs have been rated as ICRA AA/Stable from ICRA ratings and CRISIL AA/Positive by CRISIL which indicates a high degree of safety regarding timely servicing of financial obligations. One should understand about credit ratings for fixed income options to asses the risk of investing in such options.
How is the company doing in terms of profits?
Its consolidated profits are as below:
Quarter ending Mar-2020 – Rs 835 Crores
Quarter ending June-2020 – Rs 857 Crores
Quarter ending Sept-2020 – Rs 930 Crores
Why to invest in these NCDs of Muthoot Finance?
1) The company is earning consistent margins. This indicates that this company has ability to consistently pay the interest rates for its creditors or NCD holders.
3) These NCDs offer attractive interest rates where investors can get interest up to 7.75% per annum.
4) It issues secured NCDs. 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 as those backed up by assets of the company. Hence it is safe to invest in such secured NCD options.
Why not to invest in these NCDs?
1) The Spread of COVID-19 pandemic and the consequent nationwide lockdown for the past few months have impact on its operations and financial condition.
2) Its financial performance is particularly vulnerable to interest rate risk. If they fail to adequately manage interest rate risk in the future it could have an adverse effect on its net interest margin, thereby adversely affecting its business and financial condition.
3) Refer prospectus for complete risk factors.
How to subscribe to these NCDs?
This issue 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. Application forms can be downloaded on the lead manager web site. For more information on this you can refer prospectus.
Should you invest in Muthoot Finance NCD in December, 2020?
Here are a few thoughts about such NCDs:
1) Banks are reducing the interest rates month on month and the interest rates are now between 4% to 5.5% per annum. Muthoot Finance is offering secured NCDs that offers high interest rates up to 7.75%. This would definitely attract investors who are looking to earn high income.
2) One should not forget about NBFC crisis (e.g. DHFL crisis) that started 12 quarters back. Your investment as well as interest could be at risk and there could be delays in repayment of your matured NCDs.
3) Don’t put your hard earned money in single NCD pond. Always diversify your portfolio by investing in multiple investment options.
4) If you are a high risk investor and willing to consider all the risks indicated above, you can invest a small portion of your portfolio in such NCDs.
If you enjoyed this article, share this with your friends and colleagues through Facebook and Twitter.