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Business News/ Market / Stock-market-news/  Shriram Transport launches another NCD issue
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Shriram Transport launches another NCD issue

Offers special incentives for senior citizens; suitable for lower tax brackets

Shriram Transport’s NCD issue is open between 2 and 22 July, but may be closed whenever the company feels. Photo: Pradeep Gaur/MintPremium
Shriram Transport’s NCD issue is open between 2 and 22 July, but may be closed whenever the company feels. Photo: Pradeep Gaur/Mint

Mumbai: Fixed income investors have more choice, with Shriram Transport Finance Co. Ltd (STFL) opening its latest redeemable non-convertible debenture (NCD) issue worth Rs500 crore on Monday. The shelf prospectus is for a total fund-raising of Rs3,000 crore through these debentures.

STFL is a regular issuer of debentures in the public domain. There are eight series on offer with a choice of monthly, annual or cumulative payouts. Bond maturities are spread from three to seven years, and individual investors, both retail and high net worth, will get an additional interest per annum of 1-1.25% depending on the tenure.

The interest coupon for individual investors ranges from 10.7% per annum to 11.5%, depending on the payout option and tenure of the bond. This issue also comes with benefits for senior citizens—they get an additional yield of up to 0.25% across tenures. But this benefit extends only to the first allottee and is not transferable.

What are the risks?

The credit rating for the issue has not changed from the previous year’s issuances; it is rated AA/Stable from Crisil and CARE AA+. A, AA or an equivalent rating signifies high ability to service financial obligations.

The bond has got good rating and, additionally, financial data we looked into also suggest the company is comfortably placed to meet its debt obligations despite the difficult economic conditions.

Being a non-banking finance company, STFL is primarily involved in borrowing and lending and operates mostly in financing of pre-owned commercial vehicles. The financial metrics don’t look as good as last year. While sales growth was up 20% for the year, net profit declined marginally. This is mostly a result of slower economic growth resulting in slower credit offtake and high cost of funds.

The momentum in commercial vehicle finance has slowed down over the past couple of years. In 2013-14, STFL’s total non-current assets grew only 11%. However, STFL is a cash-rich company involved in this business for many years and should be able to tide over the slowdown. In 2013-14, the company managed to add around Rs850 crore to its cash balance. As per the company’s annual report, its gross non-performing assets have gone up by around 80 basis points to 3.89% compared with the previous year.

The bonds are proposed to be listed on stock exchanges and hence, you have a secondary market exit option. If you intend to trade these bonds and not hold till maturity, you also have to consider the liquidity and interest rate risks. These could mean that you don’t get a suitable price for exit when you want to sell or the risk that you don’t find a buyer at all.

Mint Money take

This is surely a good interest rate for individual investors, especially those in the lower tax brackets. For those in the 10% tax bracket, the post-tax annualised returns are as high as 10.32%. STFL is a well-run company with a respected management. The issue makes for a good allocation to your locked-in fixed income investment, as most fixed deposits and short-term debt funds are giving lower returns. However, keep in mind that short-term debt funds are more liquid and tax-efficient.

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Published: 30 Jun 2014, 09:26 PM IST
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