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Home / Money / Calculators /  Shriram Transport NCD offering up to 11.40%

Shriram Transport Finance Co. Ltd (STFL) is the first company in this fiscal to hit the market with a public issue of non-convertible debentures (NCDs). The issue is open from 26 July till 10 August. Allotment will be done on a first-come, first-served basis.

The company is a regular issuer. Says Vinay Kelkar, executive director, STFL, “We want to have around 25% of the loan book from retail investors; though we can get cheaper funds from banks, but it gets tough to access money if liquidity dries up suddenly." The current NCD aims at raising 600 crore.

What do you get?

Ahmed Raza Khan/Mint

What are the risks?

The credit rating for the issue has not changed compared with the previous year’s issuances; the issue is rated AA/stable from Crisil and CARE AA+. AA or equivalent rating signifies high ability to service financial obligations by the company. Also, financial data suggests STFL is comfortably placed to meet its debt obligations. 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—both sales and profits for FY12 grew at a significantly slower rate. This is mostly a result of slower economic growth and high cost of funds. As sales of commercial vehicles has slowed down and roads are getting built at a slower pace, the momentum in commercial vehicle finance has also slowed. However, STFL should be able to tide over the slowdown. As per the company’s annual report for 2011, its gross non-performing assets went up around 50 basis points to 3.14% in FY12 and overall debt-to-equity has also increased to around 4.03. Though capital adequacy for FY12 came off a bit to 22.26%, it is still above the Reserve Bank of India-stipulated 15%. Capital adequacy ratio measures how much capital a company holds compared with its risky assets (money lent to customers).

If you intend to trade these bonds and not hold till maturity, consider liquidity and interest rate risks.

Mint Money take

This is surely a good rate for individual investors, especially those in the 10% tax bracket as post-tax annualized returns are as high as 10.23%. Karthik Jhaveri, founder and director, Transcend Consulting Ltd, says, “This is worth looking at given its rating. The group is known to give higher returns."

For maximizing yield, look at the three-year cumulative option if you don’t need annual payout. As of now, 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.

You can get the application forms at Stfc.in. Forms are also available with lead managers, lead brokers and registrars to the issue.

lisa.b1@livemint.com

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