U Gro Capital NCD Nov-2021 – Review
U Gro Capital is coming up with secured NCD bonds now. These NCD bonds would open for subscription on 8th November, 2021. U Gro Capital is a leading Systematic Important Non-Deposit Taking NBFC in India. It offers NCD which has XIRR interest rate of 10.5%. The interest is paid monthly. Should you invest in U Gro Capital NCD November, 2021? What are the risk factors one should consider before investing in such high risk NCDs?
About U Gro Capital Limited
Company is a systemically important non-deposit taking NBFC.
U Grow Capital lends exclusively to MSMEs and caters to all the borrowing needs through its diverse range of product offerings like term loan, supply chain financing, machinery loan and short term financing through its multiple fintech and NBFC partners.
It lends to customers right from the prime segment (< 10% interest rates) to the micro enterprises (20 to 25% interest rates).
Additionally, company does co-lending with fintech and smaller NBFC partners to expand its reach and lend to the micro enterprises through the length and breadth of India.
U Gro Capital NCD – November 2021 – Issue Details
Issue dates: NCD issue opens for subscription on Monday, 8th November 2021 and closes on Monday 22nd November, 2021. These are allotted on first come first serve basis. Hence the issue can be closed before this date if it is oversubscribed before the closure date.
Options: These NCDs are issued in only single series. These NCDs are issued for 27 months tenure.
Coupon Interest Rates: The XIRR interest rate is 10.5% and monthly interest rate distribution comes to 10.03%.
Nature of instruments: These are rated, secured, listed, senior and redeemable nonconvertible debentures.
Issue Size: The issue size is Rs 50 Crores.
Issue Price of NCD Bond: The issue price is Rs 1,000 per bond.
Minimum Investment: Investors need to invest minimum of 10 bonds i.e., Rs 10,000 and in multiples of Rs 1,000 each.
Listing: These NCD bonds would be listed on NSE/BSE within 6 working days from the date of closure of issue.
Lead Manager: Sundae Capital Advisors is the lead manager of the issue.
How the interest would be paid on these NCDs?
Interest would be paid every month. The XIRR interest rate is 10.5% per annum, however monthly effective interest rate would come to 10.03% p.a.
How is the Repayment of NCD investment?
There is unique feature in these NCDs is that, the repayment is not done on maturity. The NCD investment would be repaid 1/3rd of face value of the bond every 9 months and the maximum tenure is 27 months.
Let me explain with an example. Assume an investor has invested 10 bonds at Rs 1,000 each = Rs 10,000.
1/3rd would be Rs 3,333.33. While interest would be paid on Rs 10,000 every month, the principal repayment would be as follows:
Part-1 – After 9 months from date of allotment = Rs 3,333.33
Part-2 – After 18 months from date of allotment – Rs 3,333.33
Part-3 – After 27 months from date of allotment – Rs 3,333.33
What are the credit ratings for these NCDs?
These NCDs have been rated as ACUITE A (Outlook: Positive) by Acuite Ratings and Research Limited. Such rating indicates high degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.
How is the company doing in terms of profits?
Here are the details of profits of the company.
Year ending Mar-2019 – Rs 3.94 Crores
Year ending Mar-2020 – Rs 19.51 Crores
Year ending Mar-2021 – Rs 28.72 Crores
How these company NCDs are secured?
It offers secured NCDs. The debentures shall be secured by way of receivables / book debts, rights in underlying contracts and movable assets.
Why to invest in these NCDs?
1) This U Gro Capital NCD offer attractive interest rate where investors can get XIRR interest up to 10.5% per annum. It pays monthly interest rate and effective rate would be 10.03%.
2) U Gro Capital generates consistent and growing margins. This means that company has ability to pay interest payment on time to its NCD holders without any delay.
3) It issues secured NCDs. These NCDs are safe compared to unsecured NCDs. In case company gets wind-up/shut down for some reason, secured 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.
4) Company NCDs are rated as Acuite A (Outlook Positive) by Acuite Ratings and Research Limited which indicates high safety and low risk.
Why not to invest in these NCDs?
1) The impact of the COVID-19 pandemic on its business and operations is uncertain and cannot be predicted.
2) Company, Directors and Promoter are subject to certain legal proceedings and any adverse decision in such proceedings may have a material adverse effect on its business, financial condition and results of operations.
3) Its business requires substantial capital, and any disruption in funding sources would have a material adverse effect on its liquidity and financial condition.
4) High levels of customer defaults or delays in repayment of loans could adversely affect its business, financial condition and results of operations.
5) They have limited operating history and evolving business make it difficult to evaluate its business and future operating results on the basis of its past performance, and future results may not meet or exceed its past performance.
6) They are subject to supervision and regulation by the RBI as a systemically important non – deposit accepting NBFC, and changes in RBI’s regulations governing them could adversely affect its business.
7) Its loan book comprises of unsecured loans. Its inability to recover the amounts due from customers in connection with such loans in a timely manner could adversely affect its operations and profitability.
8) Investment in NCD bonds of NBFC’s have turned to be riskier post DHFL crisis from 2018 onwards. Investors can lose their principal investment.
9) 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 U Gro Capital NCD?
U Gro Capital NCD offer XIRR interest rates of 10.5%. Banks are offering low interest rates; hence investors would get tempted with such NCDs. These NCDs are rated as A (Outlook Positive) by Acuite Ratings and Research Limited Ratings which are considered as good rating. However, one should consider the risks of investing in NBFC companies. High risk investors can invest in such NCDs. Moderate to low-risk investors should stay away from these NCD bonds.
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