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Friday, September 9, 2011

Religare Finvest Limited (RFL) NCD Analysis Report

Religare Finvest Limited (RFL) NCD Analysis Review
Issue Highlights
·         Issue size: Rs. 400 crore
·         Green shoe option: Rs. 400 crore (to retain oversubscription) aggregating Rs. 800 crore in case of oversubscription
·         Listing: BSE
·         Rating:    AA- (stable) by ICRA for an amount up to Rs. 1000 crore
   AA- by CARE for an amount up to Rs. 800 crore
·         Issue Schedule: 9/9/2011-26/9/2011
·         Allotment Mode: Compulsorily in dematerialized form
·         Allotment basis: FCFS (First Come First Served)
Who can apply?
·         Category 1:  financial institutions, various banks, various funds, insurance companies
·         Category 2:  various trusts, corporate bodies, research organizations, partnership firms
·         Category 3:  individual, HUF (through karta),NRI (on non repatriation basis)
Instrument Details


Option1
Option 2
Interest Payment
Annual
Annual
Minimum Investment
Rs. 10,000 (10 NCDs) under options 1 or option 2 either taken individually or collectively
In Multiples of
1 NCD (Rs. 1000)
1 NCD (Rs. 1000)
Face Value
Rs.1000
Rs. 1000
Issue Price
Rs.1000
Rs. 1000
Individual, HUF, NRI * Investing Up to Rs. 5,00,000
12.5 %
12.25%
Individual, HUF, NRI * Investing More than Rs. 5,00,000
12.25%
12.15%
Institutions
12.1%
12%
Put/Call Option
Nil
Nil
Tenure
60 months
36 months
Redemption Date
60 months from the date of allotment
36 months from the date of allotment
Redemption Amount
Face value + interest accrued at the redemption date
Face value + interest accrued at the redemption date


 *NRI investment on repatriation basis under FEMA obligations
Salient Feature
·         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)
Company Profile
Religare Finvest Limited is the wholly owned subsidiary of REL (Religare Enterprises Limited). RFL is a non deposit taking company which caters to the SME (Small & Medium Enterprises) and Retail Capital Market Financing sector.
Company’s product portfolio includes-
·         Loan against property
·         Loan against marketable securities
·         Loan against commercial assets
·         Loan against plants and machinery
·         Unsecured working capital finance
·         Loan against shares
·         ESOP funding
Objects of the Issue:
·         To fund the various financing activities including lending and investments
·         Issue expenses
·         Loan repayments and for capital expenditures
·         Working capital requirement
Comparison of NCDs with FDs
·         Unlike FDs no quarterly/monthly interest payment option
·         Unlike FD, no interest compounding facility
·         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: 16.16 % (As on 31/3/2011)

Ø Debt/Equity Ratio: 5.59 Times (As on 31/3/2011) #

Ø Net NPA: .02% (As on 31/3/2011)

Ø Interest Coverage Ratio: 1.27 (As on 31/3/2011)

Ø Debt Ratio: 85%

# Which shall increase further after this issue
Though net NPA and CAR (Capital Adequacy Ratio) are satisfactory but Interest coverage ratio indicates that company is facing problem in paying the interest rate and that is why some portion of this issue shall be used for the repayment of the loan to reduce the interest burden. Debt equity ratio was already high and after this issue it shall further increase.
Inference
Investor should understand that higher interest rate is due to the higher risk (in comparison with bank FD’s) involved. 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 ).Credit ratings from rating agency might reduce if company again taps the market with new issues.
Investor may invest some portion of capital according to their risk appetite.Traditional investors who are strictly risk-averse should stay away from this NCD and better continue with their bank FD’s.
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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