Shriram Transport Finance NCD

Shriram Transport Finance NCD issue (Oct 2018)  intends to raise Rs 1,350 crore via issue of secured redeemable non-convertible debentures (NCDs) of the face value of Rs 1,000 each. For this 2018 Tranche-II, the base Issue size is Rs 300 cr with an option to retain oversubscription amount of up to Rs 1,350 cr. The NCD issue has been rated ‘CRISIL AA+/Stable’ by CRISIL and ‘IND AA+: Outlook Stable’ by India Ratings and Research. The interest rates offered in Shriram Transport Finance NCD or retail investors is 9.4%, 9.5% and 9.7% per annum for a tenure of three, five and 10 years, respectively. 

Shriram Transport Finance NCD issue:
Tenor Interest PaymentCoupon RateEffective Yield Redemption Amount 
3 yearsAnnual9.40%9.40%1000
3 YearsCumulativeN.A.9.40%1309.66
5 YearsMonthly9.2%9.5%1000
5 YearsAnnual9.50%9.5%1000
5 YearsCumulativeN.A.9.5%1579.63
10 YearsMonthly9.3%9.7%1000
10 yearsAnnual9.7%9.7%1000
About Shriram Transport Finance:

Shriram Transport Finance  is part of “SHRIRAM” conglomerate which has significant presence in financial services viz., commercial vehicle financing business, consumer finance, life and general insurance, stock broking, chit funds and distribution of financial products such as life and general insurance products and units of mutual funds. The Company was incorporated in the year 1979 and is registered as a Deposit taking NBFC with Reserve Bank of India under section 45IA of the Reserve Bank of India Act ,1934.
Shriram Transport Finance Company Ltd is among the leading NBFCs for the commercial vehicle industry and one of the largest asset financing non-banking finance companies in the organized sector. The company caters to first-time buyers, small road transport operators for financing pre-owned commercial vehicles.and also provides commercial vehicle finance for new commercial vehicles. 

Shriram Transport Finance NCD issue Structure

Shriram Transport Finance NCD issue is structured into following categories of Investors: 
Category I – QIBs– 10% of issue
Category II – Non-Institutional Investors – 10% of issue
Category III – HNIs i.e. above Rs. 10 lakhs – 40% of issue
Category IV –Individuals including HUFs – 40% of issue; Rs. 540 crore

  • Rs. 10,000 is the minimum amount to invest in this issue.
  • CRISIL and India Ratings have rated this issue as ‘AA+’ with a ‘Stable’ outlook
  • Senior Citizens (initial allottees) are entitled to additional incentive of 0.25% per annum if NCDs allotted are continued to be held by such investors till redemption.
  • The NCDs are Secured in nature.
  • Available in Demat Form only.
  • Listing at BSE and NSE. 
  • Allotment will be made on a first-come first-served basis.
  •  No Put & Call options
Assessment:

  • NCDs are taxable, thus the return get reduced by individual’s Tax bracket. 
  • TDS is not deducted if NCDs are held in Demat form.
  • The Shriram Transport Finance NCD issue comes from a company with very strong background.
  • Shriram Transport Finance has a unblemished record of serving Fixed deposit holders as well as NCD holder for  more than three decades and thus  is quite trust worthy.
  • NCDs carry higher risk than bank deposits. The main risk  is default risk when the issuer may not be able pay the interest payments. This is not normal but can happen under extraordinary conditions.
  • Events surrounding the Default by IL&FS and subsequent pressure in equity market on HFCs and NBFCs accompanied  by considerable panic in debt market related to NCDs of DHFL, India Bulls group and higher yields for other NCDs has considerably shaken Investors confidence in Corporate NCDs. It needs to be seen if Shriram Transport Finance NCD can rebuild this trust.
  • I do not intend to apply in Shriram Transport Finance  NCD issue as I normally buy NCDs from secondary markets. However deals in secondary markets are less with other complications. Shriram Transport Finance NCD issue is reasonable opportunity for those low exposure to NCDs and who intend to build a fixed income portfolio.
  • My preference is 3 years option as interest rates could harden over the long run. Those in need of regular money can invest in 3 year monthly plan . 
  • The allotment is on first come first basis.
Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.