Name of the product
Manappuram Finance Ltd’s NCD
What is it?
The company plans to raise Rs 400 crore via the public issue of this secured NCD. It can retain oversubscription up to Rs 350 crore. The offer is open for institutional and individual investors.
What you get
There are two series on offer—option I and II. Option I is for 400 days and option II for two years. For individual investors, the annual interest offered is between 12% and 12.2% per annum.
The 400-day NCD doesn’t have an interest payment schedule; it pays back the principal with accrued interest at a yield of 12% per annum at the end of the tenor. Option II makes semi-annual interest payment at 12.2%.
Each NCD is worth Rs 1,000. Investors can apply for a minimum five NCDs (worth Rs 5,000) for each option. Allotment will be done on first-come-first-serve basis.
The debenture issue has been rated CARE AA- by CARE and BWR AA- from Brickwork for an amount up to Rs 750 crore. “AA” rating suggests that a company has high ability for debt serving and low credit risk, but the modifier “-” suggests that within its category the company’s comparative standing is below average.
Also, be mindful that at present the company is almost 100% in the gold loan business and hence business may get affected by any meaningful decline in gold prices.
The company is mainly in the gold loan business and all its advances are secured against it.
The company’s debt-to-equity multiple of 2.94 is in sync with the industry average. It will increase to 3.32 post-issue if the entire Rs 750 crore gets subscribed. Additionally, its capital adequacy ratio at 29.13% is very comfortable for future growth. Despite the current interest rate scenario, the average cost of funds for Manappuram was 8.89% in FY11, down from 9.84% in FY10—this is on the lower side compared with similar non-banking finance companies.
Mint Money take
What works well for this issue is the comparatively shorter tenor of the NCD—400 days and two years is not a very long time for individual investors to lock their money. Also, the interest rate offered is so far the highest among the various NCDs being launched. Lastly, interest in the option II is payable every six months, which means you have some income to reinvest every six months. While the rating is not the most attractive, specially given the “-” modifier, the relatively shorter time period means you take on risk for a short while. The returns offered are very attractive given the risk and individual investors who aren’t completely risk averse can invest in either of the options.