Shriram City Union Finance Limited (SCUF), a part of the Shriram group of companies and the sister concern of Shriram Transport Finance will be launching the public issue of its secured non-convertible debentures (NCDs) of Rs. 500 crore including a green shoe-option of Rs. 250 crore from September 12, 2012.
The company plans to use the proceeds from the issue to finance its business operations, repay the existing loans, for lending and investment purposes and other business operations including capital expenditure and working capital requirements. The issue closes on September 26, 2012.
About Shriram City Union Finance
SCUF, incorporated in 1986, is registered with the Reserve Bank of India as a deposit-taking non-banking finance company (NBFC) with its presence in gold loans, small business finance loans, auto loans, two-wheeler loans, personal loans and consumer durable loans. The promoter group companies hold 54.95% stake in the company at present. The company has a network of 927 branches as on June 30, 2012, out of which 654 branches are located in the southern states and 85 branches are located in Maharashtra.
Financials of the company
During the year ended March 31, 2012, SCUF reported total income of Rs. 2,056 crore as against Rs. 1,323 crore during the year ended March 31, 2011, an increase of approximately 56%, mainly on account of 68% growth in the assets under management (AUM) of the company at Rs. 13,431 crore in FY12 vs. Rs. 7,998 crore in FY11.
The company reported an increase of 66% in its operating costs to Rs. 425 crore in FY12 as compared to Rs. 256 crore in FY11 while there was a jump of 42.32% in company’s profit after taxes (PAT) which stood at Rs. 343 crore in FY12 as compared to Rs. 241 crore in FY11. It reported a marginal decline in its net interest margin (NIM) from 8.21% in FY11 to 7.53% in FY12. In the first quarter of FY13, the company earned PAT of Rs. 103 crore on total income of Rs. 674 crore.
Asset quality of the company has been improving consistently over the last 2 years despite a healthy jump in its AUM. Gross NPAs and Net NPAs of the company stood at 1.55% and 0.38% respectively as on March 31, 2012 as against 1.86% and 0.43% respectively as on March 31, 2011 and 2.27% and 0.71% respectively as on March 31, 2010. This consistent decline in the NPA figures is actually quite remarkable in the current business environment and looking into the kind of customer profile the company has.
Gold loans and small business finance loans constituted 64.84% of the AUM in FY12. This figure suggest that the company is primarily focusing on these two segments to grow its business. Its portfolio is geographically concentrated as just three states, Andhra Pradesh, Tamil Nadu and Karnataka, accounted for around 89% of its portfolio as on March 31, 2012.
Features of the Issue
The company is offering an annual coupon rate of 10.60% for a period of 36 months and 10.75% for a period of 60 months to all the categories of investors except the “Resident Individual Investors” i.e. for the retail investors investing up to Rs. 5 lakhs in a single name. Like it was done in the Shriram Transport Finance NCD issue in July, the company has decided to offer an additional incentive of 0.90% per annum for 36 months and 1% per annum for 60 months to the Resident Individual Investors.
40% of the issue is reserved for the Reserved Individual Category i.e. for the individual investors investing up to Rs. 5 lakhs and another 40% of the issue is reserved for the Non-Reserved Individual Category i.e. for the individual investors investing above Rs. 5 lakhs. 10% of the issue is reserved for the institutional investors and the remaining 10% is for the non-institutional investors. NRIs and foreign nationals among others are not eligible to invest in this issue also. The allotment will be made on a “first-come-first-served” basis.
The NCDs have been rated ‘CRISIL AA-/Stable’ by CRISIL and ‘CARE AA’ by CARE indicating high degree of safety regarding timely servicing of financial obligations and very low credit risk. The bonds will offer reasonable liquidity to the investors as they are going to list on both the stock exchanges – NSE and BSE.
Unlike Shriram Transport Finance and IIFFL NCD issues, investors will not have the option to apply these bonds in physical form i.e. it is mandatory for all the applicants to apply for these NCDs only in the dematerialised form.
The investors will have the option to get the interest either paid annually or at the end of the tenure along with the principal. Under the cumulative interest option, retail investors will get Rs. 1,743.30 after 5 years and Rs. 1,386.20 after 3 years for every Rs. 1,000 invested. For all other investors, these amounts stand at Rs. 1,666.65 and Rs. 1,352.90 respectively.
|Face Value||Rs. 1000||Rs. 1000||Rs. 1000||Rs. 1000||Rs. 1000||Rs. 1000||Rs. 1000||Rs. 1000|
|Redemption Amount||Rs. 1000||Rs. 1000||Rs. 1000||Rs. 1000||1386.20||1352.90||1743.30||1666.65|
|Maturity Period||36 Months||36 Months||60 Months||60 Months||36 Months||36 Months||60 Months||60 Months|
As is the case with all of the listed NCDs, the interest earned will be taxable but the company will not deduct any tax at source (or TDS). The issue keeps a minimum investment requirement of Rs. 10,000 (or 10 bonds of face value Rs. 1,000) which is somewhat higher than the minimum investment requirement of Rs. 5,000 in case of IIFFL.
Performance of the bonds issued last year
NCDs issued last year by SCUF offering 12.10% coupon and 60 months to maturity are currently yielding 12.06% with the last closing price quoting at Rs. 1,043.45. NCDs offering 11.85% coupon with 36 months to maturity are currently yielding 12.78% with the last closing price at Rs. 1030. The 60 months option was subscribed by maximum number of people last year and it is also the most traded option among all the options offered. So, going by these yields, 11.75% and 11.50% should not ideally attract too many retail individual investors. At least I would not be jumping on to it for my investments.