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Wednesday, August 10, 2011

Shriram City Union Finance (SCUF) NCD Analysis Report

Shriram City Union Finance (SCUF) NCD Analysis
Issue Highlights
Issue Size: Rs. 375 Crore with the Green Shoe Option of 375 Crore
(To Retain the Oversubscription)
Issue Period: 11/8/2011-27/8/2011
Face Value: Rs. 1000
Credit Rating
·         CRISIL: AA-/Stable
·         CARE: AA
Listing: NSE, BSE
Instrument Details
Options
1
2
Minimum Application
10 NCDs (10,000 Rs.) for option 1 or option 2 taken
Individually or collectively
In Multiples of
1 NCD
1 NCD
Issue Price
Rs. 1000
Rs. 1000
Interest Payment for Category 1 & 2
11.6%
11.5%
For Reserved Individual Investors category 3  #
12.1%
11.85%
For Unreserved Individual Investors category 3*
11.85%
11.6%
Put & Call Option
At the end of 48 months from the debt of allotment
NA
Tenor
60 months
36 months

# Reserved investors: Investment bellow 5 lakh Rs.
*Unreserved investors: Investment above 5 lakh Rs.

Objects of the issue
·         For various financing activities
·         Loans repayment
·         Working capital requirement
·         Business activities including capital expenditures
Who Can Apply?
Category 1: various banks, financial institutions, various funds, insurance companies
Category 2: companies, various trusts, research organizations, partnership firms
Category3: Individual & HUF
Company Profile
Shriaram City Finance (SCUF) is an NBFC from Shriram Group .It was incorporated in the year 1986. Company provides the finance services in various segments like Auto Finance, Two Wheeler Finance, Personal Finance, Loan Against Gold and Small Enterprises Financing. Company has pan-India presence with 559 branches and 91 business outlets across 17 states in India. SCUF’s AUM (Asset Under Management) has grown at the CAGR of 34% in past years.
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
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

Strengths
·         Diversified portfolio of products which comprises product finance loans, pre-owned & new vehicle finance loans, personal loans, loans against gold and loans to small enterprises.
·         Pan-India presence with 559 branches and 91 business outlets

Threats
·         Profitability depends on NIM, and volatility in interest rates could affect the same
·         Alike every finance company, risk of customers’ default persist
·         Company operates mainly in southern region
·         Credit ratings is for present issue only, if further offering hits the market , this might result in the down gradation of the credit ranking
·         Risk of Asset-Liability mismatch  due to varying  maturity of assets and liabilities
·         Interest rate hike reduces the price of the NCD( price on the exchanges)
·         cash from operating activities is negative
Financial Analysis
Ø  Capital Adequacy Ratio: 20.53% (FY 11)
Ø  Debt/Equity Ratio: 6.66 post issue
Ø  Gross NPA: 1.86%
Ø  Net NPA:  .43%
Ø  Interest Coverage Ratio: 1.51
Inference:
Fundamentals of this SCUF NCD are not as good as the previous STFC NCD from the same Shriram group; whether Debt-Equity Ratio, Capital Adequacy Ratio Or Interest Coverage Ratio, STFC NCD holds an edge over this issue.
Capital protection should be the first priority of investors and not the higher interest rates. Instruments with higher-risk offers more interest rates than their low-risk counterparts.
Investor may skip this issue as more NCDs are lining up in coming days, and it shall be always better to buy STFC NCD from the secondary market than applying for this issue.
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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