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Monday, August 1, 2011

India Infoline Investment Services Limited (IIISL) NCD Analysis Report

India Infoline Investment Services Limited (IIISL) NCD Review
Issue Highlights
Face value: 1000 Rs.
Issue Price: 1000 Rs.
Issue Size: Rs. 375 crore
Green Shoe Option: Rs. 375 crore (to retain the oversubscription up to Rs. 375 crore)
Listing: NSE, BSE
Credit rating: ICRA AA-(stable), CARE AA-
Mode of allotment: Compulsorily in Dematerialized Form
Issue Begins on: August 4, 2011
Issue closes on: August 12, 2011
Objects of the issue
·         For various financing activities
·         Issue expenses & general corporate purposes
·         For working capital requirement and various  business expenses including capital expenditure

Who Can Apply
·         Category  1: Various Funds, Banks, Insurance Companies
·         Category  2:  Companies, Corporate Bodies, Trusts, Partnership Firms, Research Organizations
·         Category 3: Individual, HUF

Instrument Details
Options
1
2
3
Tenure
36 Months
40 Months
60 Months
Interest Payments
Annually
NA
Annually
Redemption
36 Months
40 Months
60 Months
Coupon rate
11.7%
11.7% **
11.9%, 11.7%  ##
Minimum application
Rs. 5000 (5 NCDs)
Rs. 5000 (5 NCDs)
Rs. 5000 (5 NCDs)
And in multiple of
1 NCD
1 NCD
1 NCD
Redemption amount
NCD Face Value+ Interest Accrued
Rs.  1446.18
NCD Face Value+ Interest Accrued


** NCD shall be redeemed at Rs.1446.18 at the end of 40 months thus giving effective interest rate of 11.7%
## 11.9% for category 3 investors (Individuals –Both reserved and unreserved) and 11.7% for others

Reservation
Quota
Individuals up to 5 lakh
Individuals more than 5 lakh
NII
QIB
Amount
300 crore
150 crore
150 crore
150 crore



Company Profile
India Infoline Investment Services Limited (IIISL) was incorporated on July 7, 2004, is a subsidiary of the IIFL groups. IIISL got the NBFC status in the year 2005.
IIISL focuses on various loan segments like Mortgage Loans, Capital Market Finance Loans, Gold Loans and Healthcare Loans.
Segment
As % of total Loan book
Products

Mortgage Loans
60%
Housing Loan, Loan against Property
Capital Market Finance Loans
35%
Loan against Stocks, Margin Funding, IPO Financing Etc
Gold Loans
4%
Loan Against Gold
Healthcare Finance
1%
Finance for Medical Equipments and Project Funding


By June 2011, company had 524 branches with 2263 employees.


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

Threats
·         Presently gross NPA’s are .44% of the loan book
·         Profitability is prone to interest rate volatility
·         Company might face liquidity problems due to asset-liability mismatch at some particular time due to different maturity dates
·         In case of Gold  and Healthcare Financing business , decrease in the value of the collateral may lead to loan defaults by the debtors
·         Net Cash Flow from operating activities is negative
·         Debt to equity ratio increased over years
Strengths
·         AA-(stable) credit rating by ICRA  for
·         Since 2008 loan book of IIISL comprises secured loans only, this ensures lower NPA.
·         IIISL has sufficient capital to fund growth. CAR (Capital Adequacy Ratio) for FY 11 is 29.95% against 15% RBI’s statutory limit though CAR has reduced in past 3 years.
·         Extensive distribution and branch network
Points Investor Should Know
·         If company does not receive 75% of the base issue, entire subscription shall be refunded to applicants within 30 days from the date of closure
·         In the case of over subscription allotment shall be on FCFS (First Come First Serve)basis
·         Interest on refund : 4%
·         Interest on application : 6%
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: 29.95% (FY11)
Ø  Debt/Equity Ratio: 1.71
Ø  Gross NPA: .44% (FY 11)
Ø  Net NPA: .38%
Ø  Interest Coverage Ratio: 1.58
Ø  Cost of funds : 9.43%
Ø  Net Interest Margin (NIM): 7.17%
Ø  Return on asset: 2.16%
Inference
Present fundamentals of IIISL are good but clearly under pressure, Interest cover and CAR have decreases over past 3 years and debt to equity ratio shot up for the same period.
Fundamentals are tad inferior to previous issue from STFC that’s why interest rates are 30 basis points higher than the STFC NCD.
For an individual, IIISL is giving higher interest (265 basis points more in option 3 for individual) than top bank FD rates.
One should definitely allocate some portion of its debt portfolio to this NCD and allocation depends on one’s risk-reward matrix.
NCDs from private players are a little 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 ). Those who want to invest in the this issue should invest at the earliest as such issues get oversubscribed and close before the closure date.
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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