10.15% Manappuram Finance NCD Jan 2019 – Should you invest?
Manappuram Finance NCD Jan 2019 Review
IL&FS Crisis has created a liquidity crunch in the financial sector. Bunch of NCD Public issues are being lined up now. One among is Tranche II of Manappuram Finance Secured NCDs. Manappuram Finance NCD Issue would open for subscription on 28th January, 2019. The Manappuram Finance NCD offers up to 10.15% interest rates. Your money would get doubled in 86 months. When interest rates are low, high interest rate NCDs from Manappuram Finance would definitely attract investors who want to invest for short term to medium term. Should you invest in Manappuram Finance NCD Jan 2019? What are the risk factors one should consider before investing in such high risk NCDs?
About Manappuram Finance Limited
They are one of the major NBFC players in the gold finance business in India. They provide loans against the pledge of household and/or used gold jewelry and provide short-term personal and business gold loans primarily to retail customers who require immediate availability of funds, but who do not have access to formal credit on an immediate basis. Its Gold Loan portfolio as of March 31, 2018 comprised approximately 2.25 million customers aggregating a principal amount of ₹ 117,349.82 million in Gold Loans, which accounted for 76.21% of its total loans on a consolidated basis. As of June 30, 2018, they disbursed Gold Loans to customers from a network of 3,331 branches of the company in 28 states and union territories of India, including 2,236 branches in the southern states of Andhra Pradesh, Telangana, Karnataka, Kerala and Tamil Nadu.
What are NCD Bonds?
If you want to more about NCD bonds, you can view this video.
Features of Manappuram Finance NCD Jan 2019
Issue start date: 28-Jan-2019
Issue end date: 27-Feb-2019. However, based on over subscription it can get close before that.
Tranche II NCD’s are available in 7 options. It offers NCD for 3 years, 5 years and 86 months (2,617 days).
Interest rates are between 9.35% to 10.15%.
These are secured NCDs.
Interest payable every month, every year and on a cumulative basis depending on the option 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. Hence, these are liquid investments.
NRI’s cannot apply to this NCD subscription.
These NCD’s are rated as CARE AA/Stable by CARE Ratings and BWR AA+ Stable by Brickwork Ratings.
The current Tranche II issue size Rs 150 Crores with an option to retain another Rs 587 Crores totaling to Rs 737 Crores.
Edelweiss Financial Services and AK Capital Services are the Lead managers to the issue.
Shelf Prospectus can be downloaded at this link.
Interest rates for Manappuram Finance NCD Jan 2019
Here are the interest rates and coupon rates on these NCDs.
How the NCD issue is allocated to various investors?
1) Retail Portion – 50% of the issue
2) HNI – 30% 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 Tranche II NCDs?
Here are the credit ratings.
1) The Secured NCDs have been rated by CARE as AA/Stable.
2) The Secured NCDs have been rated by BWR AA+/Stable.
3) The rating of the NCDs by CARE and Brickwork indicates a high degree of safety regarding timely servicing of financial obligations.
How the Manappuram Finance NCDs of Jan 2019 are secured?
The principal amount of the NCDs to be issued in terms of the Shelf Prospectus together with all interest due on the NCDs, shall be secured by a first ranking pari passu charge by way of a mortgage over the Company’s specific immovable property and a first ranking pari passu charge on all current assets, book debts, receivables (both present and future) of the Company, created in favor of the Debenture Trustee, as specifically set out in and fully described in the Debenture Trust Deed. Some of these are already covered with some other cover, hence you should read Tranche II Prospectus to know more information.
When Manappuram Finance NCD Jan 2019 is 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 Closure.
How is the company doing in terms of profits?
One should always assess how the company is generating profits. This would create confidence to investors that their interest would be paid from such profits without any problems. Let us look at the profits of the company now.
Year ended Mar-2016 – Rs 337 Crores
Year ended Mar-2017 – Rs 726 Crores
Year ended Mar-2018 – Rs 700 Crores
Manappuram Finance NCD Jan 2019 – How the returns taxed?
Here is how the NCDs would be taxed.
1) Since the investors would be applying these NCDs through demat account, there would not be any 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.
2) If you are selling the Manappuram Finance NCDs before 1 year and there are short term gains, you need to pay short term capital gains which are based on your income tax slab.
3) If you are selling the Manappuram Finance NCDs on or after 1 year and there are long term gains, you need to pay long term capital gains which would be 20% on indexation method or 10% without indexation method.
Why to invest?
1) The company is earning consistent and improving margins in the last 3 years. Its profits were at Rs 337 Crores in FY16 Vs Rs 700 Crores in FY18.
2) These NCDs offer attractive interest rates where you can get interest rates up to 10.15% 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.
Why not to invest in Manappuram Finance NCD Jan 2019?
1) IL&FS Scam has created a liquidity crunch in financial sector in India. IL&FS crisis has created new confusion for investors whether to invest in such finance companies.
2) The company and its Directors are involved in certain legal and other proceedings (including criminal proceedings) in India and may face certain liabilities as a result of the same.
3) The company may not be able to successfully manage and maintain its growth.
4) Volatility in the market price of gold may adversely affect its financial condition, cash flows and results of operations.
5) Its business is subject to various regulatory and legal requirements. Also, future regulatory changes may have a material adverse effect on its business, results of operations and financial condition.
6) Its financial performance is particularly vulnerable to interest rate risk. If the company fails to adequately manage its interest rate risk in the future it could have an adverse effect on its net interest margin, thereby adversely affecting its business, cash flows and financial condition.
7) The company may not be able to realize the full value of its pledged gold, which exposes us to potential loss.
8) Company and its Subsidiaries are subject to periodic inspections from RBI and NHB. Non-compliance with RBI or NHB observations may have a material adverse effect on its and its Subsidiary’s business, financial condition or results of operation.
9) The company received requests for information and show cause notices from RBI and SEBI indicating certain violations of RBI and SEBI norms.
10) Microfinance loans offered by its subsidiary, AML, are unsecured and are susceptible to various operational, credit and political risks which may result in increased levels of NPAs, thereby adversely affecting its business, results of operation and financial condition.
11) The new Bankruptcy Code may affect its rights to recover loans from borrowers.
12) Its subsidiary, MHFL being an HFC, has significant exposure to the real estate sector and any negative events affecting this sector could adversely affect its business and result of operations.
13) Some of its Subsidiaries and Group Companies have incurred losses, which may have an adverse effect on its reputation and business.
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 Manappuram Finance NCD Jan 2019?
Manappuram Finance NCD Issue Jan 2019 is available in only in demat form. You can apply online or through any of the leading demat broker where you are maintaining a demat account. For more information on this you can refer prospectus.
Should you invest in Manappuram Finance NCD Jan 2019?
Refer my earlier articles about NCD’s and you would get the answer. You should ask these 4 questions before you want to invest in these NCDs.
1) Manappuram Finance offers secured NCDs. Investing in NCD’s would be high risk, especially when finance companies are facing a liquidity crunch. Do you want to invest in such NCD’s then?
2) These NCD’s are for 3 years, 5 years and 86 months (7+ years). Do you want to park your money in high risk NCD for long term of 5 or 7+ years? Parking money in high risk options for longer time is not advisable as no one can predict what happens to companies in the long term. You can look for investing in 3 years secured NCDs as these are for short term and they are secured in nature.
3) Manappuram Finance NCD offers yield up to 10.15% interest per annum. There are several banks which still offer 7% to 8% on their fixed deposits which carry little lower risk compared to NCDs. If you are a high risk taker, investing in the secured NCDs that give over 8% returns may be one of the best investment options.
4) Its NPAs are very high compared to other companies in NBFC companies in India. In future there could be delays in payment of interest if they start writing off money and their profits shrink. Are you okay with this?
Readers, what do you think about these NCDs of Manappuram Finance Limited?
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Manappuram Finance NCD Jan 2019 Review
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