Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Money / Calculators/  Is Shriram NCD worth the risk?
BackBack

Is Shriram NCD worth the risk?

If you want to invest, make it only a small portion of your debt allocation

Pradeep Gaur/MintPremium
Pradeep Gaur/Mint

Shriram City Union Finance Ltd, a Shriram Group company, has recently opened the public offer of its secured non-convertible debentures (NCD). The basic issue size is 100 crore with the option of retaining oversubscription of up to another 100 crore. A total of 80% of the issue is reserved for individual investors.

Features

The issue consists of seven series, and the annual interest coupon varies from 11%-11.5% for individual investors including high networth individuals (categorized as individuals applying for an aggregate value of more than 5 lakh).

The coupon offered to individual investors is at least 25 basis points higher than what is being offered to institutional investors. Out of the seven series, there are four with an annual coupon and tenors varying from 36 months to 60 months. Series 7, which has a 60 month tenor, is redeemable in equal parts in a staggered manner at the end of 36, 48 and 60 months. The other three series are cumulative options; which means you won’t get an annual interest payout but the accumulated amount will be paid to you along with the principal at the end of the tenor. The NCDs are proposed to be listed on BSE Ltd and National Stock Exchange.

Risks

The credit rating for the issue is CARE AA, indicating high financial stability and ability to fulfil financial obligations. Shriram City Union Finance is a deposit taking non-banking financial company (NBFC). Gold loans which were around 40% of the loan book last year now only contribute around 22%. This shift away from gold loans is deliberate and brings stability to the loan book. Says Subhasri Sriram, executive director and chief financial officer, Shriram City Union Finance, “We started to change our model in December and are now focusing on growing the small enterprises and two-wheeler loan book." It is comfortably placed on financial metrics and its gross non-performing assets hasn’t changed much in FY13 as compared with FY12. Nevertheless, pressure on individuals’ earning capacity in the economy may be showing now, which has led to delays in repayments by customers. Shriram City Union Finance, however, has a reasonably high provisioning for bad loans.

Should you invest?

Interest payments for NCDs are not assured or guaranteed and ultimately the decision to invest is based on your perception of the company, its credit rating, financial health and your asset allocation. Kiran Kumar Kavikondala, director of WealthRays Group, said, “We feel any company part of the Shriram Group is a good investment option and would recommend people to go for this NCD." You can consider investing in this issue, but keep in mind there are risks; NBFC earnings are vulnerable to slowing economic growth. Allocate only a small portion of your overall fixed income portfolio; at a maximum of 8% post-tax return for those in highest tax bracket, this issue shouldn’t be your primary choice.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 27 Nov 2013, 07:03 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App