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Business News/ Money / Calculators/  Analyse risks before buying Manappuram NCD
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Analyse risks before buying Manappuram NCD

Take a decision on the Manappuram offer based on comfort with the business rather than returns

Adrian Moser/BloombergPremium
Adrian Moser/Bloomberg

The 2,490 crore gold loan company, Manappuram Finance Ltd, is offering another series of non-convertible debentures (NCDs) for retail investors. It plans to raise 150 crore through these secured redeemable NCDs, and can retain oversubscription to the extent of 150 crore.

The firm has regularly come up with public issue of NCDs targeted at retail investors (application up to 5 lakh across series). This time, there are 11 series on offer with monthly, annual or cumulative payouts. Minimum application has to be of 10,000. Half of the issue is reserved for individual applications, and 20% for those totalling more than 5 lakh.

The company is offering an additional 0.25% for series VI and series VII bonds if you hold listed NCDs issued previously, or its equity shares. Also, if you invest more than 1 lakh across series in this issue, you will get the extra 0.25% on these two series. The additional coupon is only for original bond holders.

The credit rating for the issuer is lower compared with some of the recent issues. The issue is rated Crisil A+/stable. This means the company’s ability to service financial obligations is good. It is a secured issue, which means you will have claim on specified immovable property in case of default in payment.

The company operates across the country. Its gold loan book is of around 8,155 crore (31 March 2014). For the past two years, the gold loan book has seen a negative growth as has the company’s total income. Slower imports of gold and falling prices have affected business. However, cash on books is stable. The level of net non-performing assets has risen significantly since 2012 and is now 1% of total assets. The slowdown in the gold loan business is a risk, and if the situation remains so, income and profits could decline further. “We are not too concerned over the next three years or so, as demand for gold in India is high. So far, we don’t see an issue unless gold price falls to less than half," said Kiran Kumar Kavikondala, director, WealthRays Group.

The bonds are proposed to be listed on the Bombay Stock Exchange. So, you have a secondary market exit option. If you don’t intend to hold the bonds till maturity, you must consider the liquidity and interest rate risks. These can result in you not getting a suitable price when you want to sell, or the risk of not finding any buyer.

Mint Money take

The issue advertises a yield of 12.13% for series V, which offers monthly interest with a 3-year tenor. But that is achievable only if the monthly payout is reinvested in a security with a similar monthly interest on offer. This is difficult to do. Consider the monthly options only if you need regular income. Else, the cumulative options work best. Such issues work better for investors in lower tax brackets; for those in the 30% tax slab, the highest post-tax return is around 8.1% per annum. Apply only if you are comfortable with the company’s profile as well, instead of looking just at the returns.

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Published: 17 Sep 2014, 06:16 PM IST
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