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Friday, June 24, 2011

STFC (Shriram Transport Finance Company) Limited NCD Analysis Report

NB: If you are looking for STFC NCD of July 2012, plz. visit STFC NCD July 2012


Shriram Transport Finance Company (STFC) Limited NCD Analysis Report 
Issue Highlights
·         Issue size: Rs. 50,000 lakh
·         Green Shoe Option: Rs.  50,000 lakh  (to retain over subscription) ,aggregating ì 1,00,000 lakh.
·         Listing:  NSE
·         Rating:  AA /stable by CRISIL
 AA+ by CARE
·         Issue Schedule: 27/6/2011 – 9/7/2011
·         Allotment Mode: dematerialized form
·         Allotment Basis :  FCFS(First Come First Served)
Instrument Details
Option 1                              Option 2

·         Interest Payment                            Annual                                  Annual
·         Face Value                                         Rs.  1000                                  Rs.   1000
·         Issue Price                                         Rs.  1000                                   Rs.   1000
·         Coupon Rate                                      11.1% Per Annum            11% Per Annum
·         Coupon Rate
(Reserved Individual)**                           11.6% per Annum            11.35% per Annum
·         Coupon Rate
(Unreserved Individual)##                        11.35% per Annum          11.1% per Annum
·         Effective Yield Per Annum                 11.1% Per Annum            11% Per Annum
·         Effective Yield Per Annum                 11.6% Per Annum            11.35%  Per Annum
(Reserved Individual)
·         Effective Yield Per Annum                 11.35% Per Annum          11.1% Per Annum
(Unreserved Individual)

·         Put And Call Option:                           After 48 Months               Nil
·         Tenor                                                    60 Months                        35 Months
·         Minimum application                    10 NCDs (ì 10,000)
(For all options, individually or collectively)
·          In multiples of                                 1 NCD (ì 1,000)                  1 NCD (ì 1,000)

**reserved individual:  Individual and HUF who applied for NCDs (option 1 and/or option 2) aggregating to a value not more than ì  5 lakh

## reserved individual:  Individual and HUF who applied for NCDs (option 1 and/or option 2) aggregating to a value exceeding  ì  5 lakh

Salient Features:
·         No TDS shall be deducted
(According to Section 193 clause 9 of IT act, when security is in dematerialized form and listed on recognized exchanges in India , no deduction of tax shall take place)
·         Interest payment: on 1st April of every year (last interest payment at the time of redemption)
·         Direct credit of interest to investors account for selected banks in selected cities via NECS,NEFT,RTGS
·         Redemption
Ø  Option 1: after 48 months subject to exercise of  Put/call option or after 60 months
Ø  Option2:after 36 months

Company Profile
Shriram Transport Finance Company Limited  (STFC ) belongs to the Shriram group and was established in the year 1979 and is registered as deposit taking NBFC with the  RBI. Shriram Transport Finance Company Limited(STFC) comes under NBFC(Non Banking Finance Companies) category, which primarily provides  the finance for pre-owned /new commercial vehicles and passenger vehicles. As of March 2011, company is having 488 branches across India. STFC’s AUM(Asset under Management) has grown with the CAGR of 31% in past years.
Objects of the Issue:
·         to fund the various financing activities including lending and investments
·         issue expenses
·         loan repayments
·         working capital requirement
Strengths
·         Largest asset financing NBFC in India
·         STFC has got strong brand name and belongs to renowned Shriram group
·         The company is diversifying in construction equipment financing, refurbishment of old commercial vehicles and recently incorporated a subsidiary Shriram Automall India limited. 
Risk Factors
·         As the company is in vehicle financing business, interest rates hike might reduce NIM and shall have an adverse affect on the profitability
·         Any future downgrade in credit rating shall increase the borrowing cost and reduce the profitability of the company
·         Maintaining CAR (Capital Adequacy Ratio) according to RBI guidelines in future shall be a challenging task
·         Loan portfolio of the company, may not fall under priority sector lending in future
·         Change in prevailing interest rates affects the price of the NCD
Comparison of NCDs with FDs
·         Unlike FDs no quarterly/monthly interest payment option
·         Unlike FD, no interest compounding facility
·         If put/ call option is not exercised(in case of option 1) redemption is at maturity date or by selling the NCD on exchanges( STFL shall list the NCD on NSE)
·         Though NCDs are safe but being offered by private player, it is a tad riskier than conventional PSU bank FDs
Financial Analysis
Ø  Capital Adequacy Ratio: 24.85% (As on 31/3/2011)
Ø  Debt/Equity Ratio: 4.08 Times
Ø  Gross NPA: 2.66% (As on 31/3/2011)
Ø  Net NPA: .38%
Ø  Interest Coverage Ratio: 1.81
Ø  Debt Ratio: 84.58%
Inference
STFC is well-managed company with proven track record, financials too are satisfactory. India’s economic growth, interest rate scenario, Government policies are few factors which determine the well-being of the STFC’s growth in future.
For an individual, STFC is giving higher interest(235 basis points more ,option 1, and reserved individual) than top bank FD rates.
One should definitely allocate some portion of its debt portfolio to this NCD.
NCDs from private players are a tad riskier than banks FDs and that’s why they give more return and therefore allocation should depend  on ones risk appetite and liquidity requirement (in rare cases there may be delay in interest payment due to technical reasons ).
Disclaimer: Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.

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