9.05% L&T Finance NCD April 2019 – Tranche-2 – Should you invest?

L&T Finance NCD April-2019 Tranche-2 ReviewL&T Finance NCD April 2019 Tranche II Review

L&T Finance NCD for April 2019 Tranche-2 would open for subscription on 8th April, 2019. It is issuing secured NCD’s in this Tranche-2. The yield is as high as 9% per annum and attracting investors now. L&T Finance has a good credit rating from CARE, ICRA and India Ratings. Currently banks are offering low interest rates and investors are looking high interest rate NCD’s. Should you invest in L&T Finance NCD of April 2019? What are the hidden factors an investor should consider before investing Apr-19 NCDs of L&T Finance? In this article, I would provide some interesting insights about L&T Finance Ltd NCD.

Also Read: Best SIP Mutual Funds from ICICI to invest in 2019

What are Non Convertible Debentures?

If you would like to know more about NCDs, you can check this video.

About L&T Finance Limited

They are one of the leading private non-banking financial services companies in India in terms of total loans outstanding, as of December 31, 2018. Its Promoter is registered with the RBI as a Non-Banking Finance Company – Core Investment Company conducting business through its wholly-owned subsidiaries.

The company is a part of the larger L&T group which is one of the leading business conglomerates in India, with a presence across infrastructure, power, heavy engineering, electrical and automation, hydrocarbons, IT and technology services, financial services, project development, metallurgical and material handling, realty, shipbuilding, construction equipment, machinery and industrial products sectors. L&T entered into the financial services business in 1994 In the year 2016, its Promoter streamlined and reorganized its financing business into three primary business segments, i.e., rural, wholesale and housing with return on equity as an important performance metric.

L&T Finance NCD April 2019 Tranche-2 Issue Details

L&T Finance is issuing secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 500 Crores with an option to retain another Rs 500 Crores over subscription totaling to Rs 1,000 Crores. It comes with 7 different options, which contains 3 years, 5 years and 8 year tenure NCDs.

About  L&T 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  L&T Finance NCD of April 2019

Issue start date: 8-April-2019

Issue end date: 18-April-2019

NCD’s are available in 7 different options.

The interest of these NCDs is payable monthly, yearly 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 Trache-2 NCD bonds would be listed on BSE and NSE. Hence, these are liquid investments.

Non-resident Indians (NRI’s) cannot invest in these NCD’s.

CARE has rated these NCDs as AAA with Outlook Stable and ICRA rated them as AAA with Outlook Stable and India Ratings as AAA with Outlook Stable, which indicate that instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations and carry lowest credit risk.

Edelweiss Financial Services, AK Capital Services, Axis Bank and Trust Investment     Advisors are the lead managers for this issue.

You can download  L&T Finance NCD Tranche-2 April 2019 details here.

Here are the interest rates on the April 2019 NCD’s of L&T Finance.

L&T Finance NCD April 2019 Issue- Interest Rates

What is the issue break-up?

1) Institutional Portion – 10% of the issue

2) Non Institutional Portion – 10% of the issue

3) High Net Worth Individuals – 35% of the issue

4) Retail Investors – 45% of the issue

How is the company doing in terms of Financials?

Here are the financials:

1) Interest income was Rs 6.6 Crores for FY16 Vs Rs 26.2 Crores for FY18.

2) Net profit improved from Rs 1.3 Crores in FY16 to Rs 191.5 Crores in FY18.

3) Net NPA is at 0.05% as of March 31, 2018.

Why to invest?

1) This is a Leading NBFC company in India.

2) Attractive interest rates where one can get 9% yield.

3) Good credit rating from CARE, ICRA AND IND Ratings.

4) It is issuing secured NCDs now in April 2019 which are safe to invest compared to other unsecured NCDs.

5) Its NPA is low in the NBFC industry.

Why not to invest in  L&T Finance April 2019 NCD?

1) Any disruption in sources of funding or increase in costs of funding could adversely affect its liquidity and financial condition.

2) They operate in a highly competitive industry and its inability to compete effectively may adversely affect its business.

3) They may not be able to maintain its current levels of profitability due to increased costs or reduced spreads between the interest rates at which they borrow and lend.

4) They are affected by volatility in interest rates for both its lending and borrowings, which could cause its net interest income to decline and adversely affect its results of operations and profitability.

5) The risk of non-payment or default by borrowers may adversely affect its financial condition and results of operations.

6) Any adverse developments in the industries in which they operate, may adversely affect its business and results of operations.

7) They are subject to laws and regulations governing the banking and financial services industry in India and changes in laws and regulations governing us could adversely affect its business, results of operations and prospects.

8) Certain of the loans provided by us are unsecured and are susceptible to certain operational and credit risks which may result in increased levels of Gross Stage 3s and may adversely affect its business, prospects, results of operations and financial condition.

9) They may be exposed to potential losses due to a decline in value of assets secured in its favor, and due to delays in the enforcement of such security upon default by its borrowers.

10) Part of its collections from customers are in cash, exposing us to certain operational risks.

11) You can refer all risk factors in the Final prospectus of the company.

How to apply L&T 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 Interest on L&T 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 through these 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  L&T Finance NCD of 2019 would get listed on BSE/BSE?

These L&T 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 29th April, 2019 assuming that it would continue till 18th April, 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  L&T 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 L&T Finance is offering secured NCDs, we are seeing that NBFC companies are delaying the interest payment due to the liquidity crunch in the company. Recently example, could be DHFL. Do you want to invest in such NCD’s then?

2) These NCD’s are for 3 years, 5 years and 8 years tenure. Do you want to park your money in high risk NCD for 8 years? We do not know how company would perform in 5 to 8 years, hence you should always invest in short term NCDs. You can look for 3 years and maximum of 5 years secured NCDs as these are for short term and they are secured in nature.  

3)  L&T Finance NCD offers yield upto 9% interest per annum, however is high risk. If you are a high risk taker, investing in some of the largecap mutual funds may be one of the best investment options that can fetch you 12% to 15% annualised returns in medium to long term.

Conclusion: L&T 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 3 years or 5 years. However, you should be willing to take the risks indicated above.

Readers, do you feel these NCDs are worth investing?

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Suresh KP

L&T Finance NCD April 2019 – Tranche-2 Issue

Suresh KP

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