Site Attacked: Ignore the daily email from June 23 2015

I noticed three posts titled ‘cheap oakley posts’ and similar variants on the site yesterday, and promptly deleted them, as well as changed passwords etc.

Three more posts like this appeared a few hours later, and then two more. I am working to get this issue resolved, but I wasn’t able to stop the daily emails from sending out these spammy posts.

Please ignore the email from today, and if you would like to unsubscribe because of this nuisance, you can scroll down to the bottom of the email and click on the unsubscribe link.

I’ll send out a further update when the issue is resolved.

Weekend Links – May 29 2015

One of the more interesting news stories of the week was the FIFA arrests, and this NYT article gives a good account on how the Swiss authorities went about doing this.

The American indictment of FIFA officials doesn’t look into the alleged corruption in awarding the 2022 World Cup to Qatar, which has caught a lot of attention recently due to the numerous workers who have died there recently. This Guardian article talks about a new atrocity where Nepalese workers weren’t allowed to go back home to attend funerals of their family members. 

This Economist articles compares how nationals of different countries have done in the US, and it is amazing to see how far ahead Indians are compared with anyone else.  

Harvard Business Review with a good article on how silence should be used as a weapon for persuasion. 

I’m a huge Game of Thrones fan, and people who have read the book or seen the TV series would know that only very few things can ever top the Red Wedding. George RR Martin on where his inspiration for the Red Wedding came from. 

A barber in a village close to the Pakistan border got suspicious when he saw a pigeon land on his hut because it had markings and seal in Urdu. He took the bird to the police, and the police took it to the vet, but all is well, the pigeon is not a spy, but the police still has the bird in custody.

Fascinating question, and unbelievable answer: Will any species go extinct if humans were to go extinct?

Enjoy your weekend!

Cricket World Cup 2015 Schedule – How to Add it to Google Calendar

Cricket World Cup 2015 has started with a big bang for India. India have beaten its biggest sporting rival Pakistan by 76 runs. It seems that Pakistan cricket team require some kind of commando training before they can even think of beating India in a World Cup match.

It also seems that Virat Kohli has fallen in love with Adelaide Oval. After scoring centuries in each of the innings of the first test against Australia, Kohli smashed one more century here yesterday against Pakistan and most importantly, it was a match winning century.

But, I was more impressed with the innings Suresh Raina played. He provided the much required momentum to the Indian innings and scored 74 runs off 56 balls. This Indian win has sent temperatures soaring among Indian cricket fans and now we all are waiting for India’s next league match, and the most crucial one, against South Africa.

After the match got over, I wanted to check the World Cup schedule and also save the dates of some of its crucial matches. As I was not sure about the date and the day of India’s next match, I quickly searched for it on Google and reached ICC’s World Cup 2015 App on my mobile. It was great to find India’s next match against South Africa to be on Sunday, I mean the coming Sunday, February 22. So, I hope we have a Super Sunday this time as well!

I found ICC’s World Cup App quite helpful and that’s why I decided to write a post on it. It has a feature through which you can add World Cup fixtures to your Google Calendar. So, all those cricket fans who want to remain updated with who is playing who during this cricket cup and want to add World Cup’s schedule to their Google Calendar, here is the step-by-step process, followed by the schedule itself.

Step 1: To have the World Cup schedule on your device, you first need to have your Google account set up on your device. You need to go to Settings > Mail, Contacts, Calendars. Moreover, you also need to make your default calendar to be Google. Just scroll down to the bottom on the same Mail, Contacts, Calendars page and see which calendar is selected as your ‘Default Calendar’.

Step 2: Download Cricket World Cup 2015 app for iOS or for Android and then launch it.

Step 3: Just tap on Fixtures, which will show you the complete schedule of the matches.

Step 4: Now tap on the calendar icon at the bottom of any fixture. Then tap on ‘Add all fixtures.’

Step 5: All the fixtures will get added to your Google Calendar and it will give you a reminder as well half an hour before a match starts.

There is one more way by which you can add the schedule to your Google calendar. Click on the Google Calendar in your Gmail. Go to My Calendars > Settings > Browse Interesting Calendars > Sports > Cricket > International Cricket Council – ICC and subscribe to the teams whose fixtures you want to add to your calendar. It will add all their matches to your calendar.

So, having World Cup 2015 schedule added to your Google Calendar will keep you updated with your favorite matches and hopefully you will not miss the day’s action on the field.

Schedule of ICC Cricket World Cup 2015

icc-cricket-world-cup-2015-ist

Courtesy: www.india.com

Also, which team do you think is going to win the World Cup this time around? I am putting my bets on South Africa as I think they have the most balanced side with De Villiers, Amla, Du Plessis, Miller, Steyn and Morkel, all ready to fire with their guns. If not South Africa, I think it would be Australia as they too have an extremely talented batting side with Maxwell, Smith, Finch, Warner and Johnson in form and they have the benefit of playing under their home conditions also.

But, whichever team wins, it has always been a fun watching Cricket getting played in Australia and New Zealand. I truly love it! 🙂

SREI Infrastructure Finance Limited NCD Review

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

SREI Infrastructure Finance Limited is the latest company to join the bandwagon of non-convertible debentures (NCDs) and without making much noise about it, the issue has already been launched by the company on September 20th. Though SREI Infra issued tax-saving infrastructure bonds last financial year, this is the first public issue of NCDs by the company.

This is a relatively small size issue of Rs. 150 crore only, including the option to retain Rs. 75 crore in case of oversubscription. The company plans to use the proceeds for various financing activities, to repay its existing loans, for capital expenditures and other working capital requirements.

About SREI Infrastructure Finance Limited

SREI Infrastructure Finance Limited is primarily engaged in providing infrastructure financing for the development of power, roads, urban infrastructure, telecom, SEZs and industrial parks etc. It is also engaged in equipment leasing, rentals & auctioning, project financing, project development, advisory and fund management. The company has also been granted the status of Infrastructure Finance Company (IFC) by the RBI, which makes it one among very few companies which have been given this status.

Financials of the company

SREI reported total income of Rs. 2,446 crore for the year ended March 31, 2012, as against Rs. 1,638 crore it generated for the year ended March 31, 2011, an increase of 49%. But, the company reported a decline of 38% in its net profit, which stood at Rs. 111 crore in FY12 as compared to Rs. 179 crore in FY11.

Gross NPAs and Net NPAs of the company stood at 1.25% and 1.12% respectively as on March 31, 2012. The company had zero NPAs till March 31, 2011. Debt Equity Ratio of the company stands at 1.54 times before this issue and will result in 1.60 times after this issue.

Here is the link to check the latest audited financial results of the company ending March 31, 2012 –

About the NCD Issue

These NCDs would be secured in nature and carry a maturity period of 7 years under all its options. These NCDs also offer a “Put Option” to the individual investors, which gives them the authority to redeem these bonds after 60 months from the date of allotment.

40% of the issue is reserved for the individual category portion, 40% of the issue is for the non-institutional investors and the remaining 20% of the issue is for the institutional investors. In this issue, there is no differentiation between the retail individual investors, including the HUFs, investing less than Rs. 5 lakhs and high-networth individuals (HNIs), investing more than Rs. 5 lakhs. The allotment will be made on a first-come-first-serve basis.

Category I – institutional investors and Category II – non-institutional investors are not allowed to subscribe for Series I – monthly interest option and Series II – quarterly interest option, whereas individual category investors can subscribe to any series of these NCDs.

SeriesIIIIIIIV
Tenor7 Years7 Years7 Years7 Years
Frequency of InterestMonthlyQuarterlyAnnualCumulative
Category of InvestorsIndividualIndividualAllAll
Minimum InvestmentRs. 1,00,000Rs. 1,00,000Rs. 10,000Rs. 10,000
Coupon9.84%9.92%10.30%N.A.
Effective Yield10.30%10.30%10.30%10.41%
Redemption AmountRs. 1,000Rs. 1,000Rs. 1,000Rs. 2,000
Put OptionYes; After 60MYes; After 60MYes; After 60MYes; After 60M

There are many features in this issue which make it quite unattractive for the investors. Firstly, the interest rate is quite low as compared to the other issues. The company is offering these interest rates under four different series – payable monthly, payable quarterly, payable annually and cumulative annually, offering 9.84%, 9.92%, 10.30% and 10.41% per annum respectively. There is very little additional incentive for the retail investors in this issue.

These NCDs have been packaged in such a manner that the effective yield to the individual investors would be either 10.30% p.a. or 10.41% p.a. at the most. Under the cumulative interest option, the individual investors will get Rs. 2,000 and the institutional and non-institutional investors will get Rs. 1,980 at the time of maturity against Rs. 1,000 invested. The company will not deduct any TDS on the NCDs taken in the demat form.

Secondly, the company has decided to keep the minimum investment requirement of Rs. 1 lakh (or 100 NCDs of face value Rs. 1,000), if an individual investor opts for the monthly or quarterly interest option. I think this amount is too high to be the minimum investment from the small retail investors’ point of view.

Moreover, these NCDs are going to get listed only on the BSE and as the issue size is relatively small, this might create a liquidity problem in future.

It is not mandatory to have demat account to invest in this issue as the investors have the option to apply these bonds in physical form also. NRIs and foreign nationals among others are not eligible to invest in this issue.

The issue has been rated ‘CARE AA’ by CARE and ‘BWR AA’ by Brickwork Ratings and closes on October 25, 2012.

Like Muthoot Finance NCDs, I don’t find any single reason for me to invest in this issue as well. I think SREI Infra wants to test the water of the NCDs market with this issue, keeping the rate of interest below 10%. It is not going to attract great interest from either the institutional investors or the retail individual investors and should ideally remain undersubscribed even with the issue size of Rs. 75 crore only.

Muthoot Finance NCD Details

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Muthoot Finance Limited will be the next company to come out with its issue of non-convertible debentures (NCDs) this month from September 17th. This issue will be the fourth issue from the company’s shelf in just over one year’s time.

Muthoot collected Rs. 1,413 crore through its previous three issues – Rs. 693 crore from Series I, Rs. 460 crore from Series II and Rs. 260 crore from Series III. The size of this NCD issue is Rs. 500 crore including a green-shoe option of Rs. 250 crore.

The company plans to use the proceeds for various financing activities including lending and investments, to repay existing loans, for capital expenditures and other working capital requirements.

 

About Muthoot Finance Limited

 

Muthoot Finance Limited, a flagship company of the Muthoot group, is primarily into the gold financing business which constitutes 99% of its total advances. It is also the largest gold loan company in India. Muthoot started its lending business in 2001 after getting RBI’s registration to function as an NBFC and currently it has a network of 3,780 branches all over India. The company till date has no major plans to diversify its business from gold loans to any other streams of financing.

Financials of the company

During the year ended March 31, 2012, the loan book of the company stood at Rs. 21,338 crore as against Rs. 11,682 crore during the year ended March 31, 2011, an increase of approximately 83%. Assets under management (AUM) stood at 26,707 crore in FY12 vs. 18,152 crore in FY11.

Muthoot reported revenues of Rs. 4,549 crore in FY12 as against Rs.2,316 crore in FY11, a jump of almost 96%. Net profit of the company increased by a massive 81% from 494 crore in FY11 to 892 crore in FY12.

Gross NPAs and Net NPAs of the company stood at 0.56% and 0.57% respectively as on March 31, 2012 as against 0.29% and 0.33% respectively as on March 31, 2011. Debt Equity Ratio of the company stands at 6.63 times before this issue and will result in 6.80 times after this issue.

Here is the link to check the latest audited financial results of the company ending March 31, 2012.

About the NCD Issue

This issue has seen a cut of 1.50% or 1.25% per annum in its interest rates across the board vis-a-vis its last two issues which the company came out with during December 2011 and March 2012 respectively. I do not understand the rationale behind this massive rate cut as the fundamentals of the company or the fortunes of the gold loan business have only deteriorated since then, as the Reserve Bank of India (RBI) has become stricter with the gold financing norms. Competition from the banks and other gold financing companies has also increased quite considerably.

I think the reason for this cut could only be attributed to the fact that during the previous two issues, the investors were not in a mood to invest any money in Muthoot NCDs after a severe beating all the listed NCDs suffered last year. Also, during that period, there was a flood of tax-free bonds and tax saving infrastructure bonds, which was keeping all the investors busy and ignorant to the Muthoot NCDs. In fact the company had decided to extend the closing date of its last issue from March 17th to April 9th and still the issue closed undersubscribed after remaining open for 39 days from March 2nd. So, I think the rate cut is not justifiable.

Here is the link to check the list of all previous Muthoot Finance NCD issues.

Though Muthoot’s loan portfolio has only one component in the form of gold loans but as far as the interest rates and maturity periods are concerned, the company always offer a bucketful of options. This year also they have many options – 2 Year NCDs, 3 Year NCDs, 5 Year NCDs and 6 Year NCDs offering 11.50%, 11.75%, 12% and 12.25% per annum respectively. “Option V” this year offers to double your money in 6 years, which was 5.5 years in the last two issues. Religare Finvest NCDs are promising to do the same for you in 70 months i.e. 5 years and 10 months, 2 months earlier than Muthoot. There is an option of monthly interest also but that is there only in the 5 year option with 11.75% p.a. rate of interest.

OptionIIIIIIIVV
Tenor2 Years3 Years5 Years5 Years6 Years
Coupon – 201211.50%11.75%11.75%12%12.25%
Interest Payment FrequencyAnnualAnnualMonthlyAnnualCumulative
Redemption AmountRs. 1000Rs. 1000Rs. 1000Rs. 1000Rs. 2000
Coupon FY2011 – I12%12.25%N.A.12.25%N.A.
Coupon FY2011 – II13%13.25%N.A.13.25%13.43%
Coupin FY2011 – III13%13.25%N.A.13.25%13.43%
Market Price FY2011 – IRs. 1000Rs. 980.2N.A.Rs. 965.8N.A.
Market Price FY2011 – IIRs. 1076.8Rs. 1067N.A.Rs. 1080Rs. 1091
Market Price FY2011 – IIIRs. 1036Rs. 1053N.A.Rs. 1050Rs. 1058

* Tenor for 2nd and 3rd issue in FY 2011 under Option V was 5.5 years instead of 6 years.
** Interest Payment Dates: Issue I – September 14 every year, Issue II – January 18 every year, Issue III – April 18 every year
*** Data as on September 13, 2012

The interest earned will be taxable as per the tax slab of the investor but the company will not deduct any TDS on the NCDs taken in the demat form. The company has decided to keep the minimum investment requirement of Rs.10,000 (or 10 bonds of face value Rs. 1,000) which is on a higher side as compared to Rs. 5,000 which was there with the NCD issues of IIFFL and Shriram City Union Finance Limited (SCUF).

50% of the issue is reserved for the retail investors i.e. for individual or HUF investors investing up to Rs. 5 lakhs, 35% of the issue is reserved for the non-institutional investors and HNIs and the remaining 15% of the issue is reserved for the institutional investors. Again, NRIs and foreign nationals among others are not eligible to invest in this issue. The allotment will be made on a “first-come-first-served” basis.

These bonds will also list on both the stock exchanges – NSE and BSE. Investors will have the option to apply these bonds in physical form also except the “Option V” bonds which are available only in the demat mode. The issue has been rated ‘AA-/Stable’ by CRISIL and ‘[ICRA] AA-(Stable)’ by ICRA.

Performance of the bonds issued last year

Most of the NCDs issued by Muthoot during January and April this year, offering 13% coupon or more, are still trading at a yield of 13% or more. NCDs with coupon 13% for 2 years in the second issue last year are trading at Rs. 1076.80, yielding 13.53% and NCDs with coupon 13.25% for 3 years in the same issue are trading at Rs. 1067, yielding 14.17%. You can check the prices of last year’s NCDs in the pasted table here.

I have a view that it is the most unattractive issue of this financial year. With other issuers offering better rates than Muthoot and its previous issues quoting at a yield of 13% plus, I find no single reason for me or for any of my family members or clients to invest in this NCD issue of Muthoot Finance. The issue gets closed on October 5, 2012.

Now almost all the companies, which issued their NCDs last year, have offered their first round of NCDs this year again. Only one out of all these issues, NCD issue of Shriram Transport Finance, has got listed and that is currently trading at a marginal discount to its issue price. It would be very interesting to observe how these NCDs list after RBI comes out with its monetary policy on 17th of this month. If we see a rate cut from RBI this time around, then there should be a rise in the prices of all the listed NCDs and bonds. Let’s see what RBI does after a very long awaited diesel price hike has happened.

Religare Finvest NCD Issue Details

Religare Finvest which is a fully owned subsidiary of Religare is also coming out with a NCD issue shortly, and this is about the same time when they issued NCDs last year.

I’m going to talk about some key points that people looking to invest in NCDs are looking for and then move on to some general aspects.

Issue Open and Close Date: The NCD open date is on September 14 2012 and the close date is on September 27 2012.

Issue Available to NRIs: NRIs can invest in these NCDs on a non – repatriable basis.

Minimum Investment Amount and Listing: There will be 5 series and the minimum for applying in any series is Rs. 10,000. There will be 4 categories of investors and like the other issues, retail investors will get a slightly higher rate than others. Here are the 4 categories of investors:

  • Institutional
  • Non Institutional
  • Non Reserved Individual Investors: Individual investors who invest more than Rs. 5 lakhs.
  • Reserved Individual Investors: Individual investors who invest less than Rs. 5 lakhs.

Here is a chart that shows the terms and conditions of the 5 series.

 

Religare Finvest 2012 NCD Issue
Religare Finvest 2012 NCD Issue

 

Interest Payment and Record Date: Interest will be paid on 1st April every year wherever applicable, and the record date is going to be 10 days prior to the interest payment date.

Secured or Unsecured: This is a secured issue; this doesn’t however mean that your money is guaranteed by anyone and if you’re unsure of what this means then please leave a comment.

Credit Rating: The issue has been rated “CARE AA-” by CARE and “ICRA AA-” by ICRA. Both of these are good ratings.

Other Things to Consider

These yields are certainly better than the Shriram City Union NCD that came out before this one, and at over 12% for all maturities I think this is pretty decent. Whether you should invest or not of course depends on where else have you invested and if this issue fits in with your other goals or not.

One thing I have always said in the past and want to repeat here is that it is not possible for most retail investors or even auditors to sniff out trouble in a company till it’s very late, and in absence of that, the best bet is to spread your money around and be safe in case something goes wrong.

This post is from the Suggest a Topic page.

Currency Composition of India’s External Debt

I wrote about India’s external debt over a year ago, and the Ministry of Finance has released a new report on India’s external debt that gives a good opportunity to revisit the topic, and look at some numbers again.

For a short period earlier this year, falling Rupee, declining forex reserves and rising external debt made some articles talk about an Indian sovereign debt default but that didn’t last long and it’s largely because government’s debt is only a small portion of the overall external debt.

Out of the total debt of $345.8 billion, government’s share was $81.9 billion and the remaining $ 263.9 was others.

India External Debt: Sovereign and Others
India External Debt: Sovereign and Others

This total external debt has increased from $305.9 billion from March 2011 and growth has been driven by a rise in external commercial borrowings and NRI deposits.

RBI took several measures to arrest the Rupee slide, and freeing NRO and NRE interest rates were some of those steps, so in a way that debt increased due to NRI deposits is a good thing.

The interesting thing about NRI deposits and their contribution to external debt is that they make Rupee the second most dominant currency in India’s external debt. I was really surprised to discover this last year, and seeing INR in the list of currencies in which India owes money to foreigners was the last thing I expected.

Here is the currency composition of India’s external debt as at March 2012.

India External Debt Currency Composition
India External Debt Currency Composition

I think the Rupee being a big part of the external debt is a pretty significant thing and if you look at how NRIs open their NRE / NRO fixed deposits — a lot of them don’t have the intention to convert this back to a foreign currency, and need to use this money in India itself. Not all of the INR debt is NRI deposits though, from last year’s numbers I know that about 30% of this is FII money that’s invested in government treasuries and corporate debt, and that has a higher probability of going out of the country one day.

From whatever little I understand, it seems to me that worrying about external default should feature pretty low in the long list of things that India has to worry about and tackle more quickly like a big fiscal deficit, stalled reforms, corruption, lack on infrastructure investments, land reforms, labor reforms and even the depreciating Rupee.

 

 

Shriram City Union Finance NCD Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

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.

SeriesIIIIIIIIIIIIIVIV
Investor CategoryIndividualsNon-IndividualsIndividualsNon-IndividualsIndividualsNon-IndividualsIndividualsNon-Individuals
Face ValueRs. 1000Rs. 1000Rs. 1000Rs. 1000Rs. 1000Rs. 1000Rs. 1000Rs. 1000
Coupon11.50%10.60%11.75%10.75%N.A.N.A.N.A.N.A.
Redemption AmountRs. 1000Rs. 1000Rs. 1000Rs. 10001386.201352.901743.301666.65
Maturity Period36 Months36 Months60 Months60 Months36 Months36 Months60 Months60 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.

India Infoline Finance Limited NCD Review

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

India Infoline Finance Limited (formerly known as India Infoline Investment Services Ltd.) will be launching its second issue of non-convertible debentures (NCDs) from September 5, 2012. To keep things absolutely clear right from the beginning, I’ll use IIFFL as the short name for this company as I want to distinguish this company from its well known listed parent company, India Infoline Limited (IIFL), and advise the readers not to confuse this issue as the issue launched by the parent company IIFL.

About India Infoline Finance Limited

India Infoline Finance Limited is a credit and finance arm of the IIFL group and provides loans against property, housing loans, gold loans, loans against securities/margin financing and medical equipment financing to the corporates, high networth individuals (HNIs) and retail clients. One of its subsidiaries, India Infoline Distribution Company Limited, is also engaged in the business of distribution of financial products like mutual funds, insurance products, company fixed deposits, NCDs, National Pension System (NPS), IPOs etc.

The company was originally incorporated on July 7, 2004 as a private limited company which leaves this company with a very short operating history and unproven business track record.

Financials of the company

During the year ended March 31, 2012, the loan book of the company stood at Rs. 6,746 crore as against Rs. 3,288 crore, an increase of approximately 105%. This jump has been achieved mainly on account of mortgage loans and gold loans which constitute approximately 45% and 41% of the total loan book respectively. The mortgage loan book is contributed by loan against property (LAP) at 89% and home loans at 11%. These figures suggest that the company is primarily focusing on gold loans as the new business segment and LAP in the housing loan segment.

IIFFL reported revenues of Rs. 953 crore in FY12 as against Rs. 520 crore in FY11, a jump of almost 83%. It also reported 76% increase in its net interest income (NII) to Rs. 412 crore in FY12 from Rs. 234 crore in FY11 mainly on account of a 105% increase in its lending book. Gross NPAs and Net NPAs of the company stood at 0.61% and 0.44% respectively as on March 31, 2012 as against 0.37% and 0.30% respectively as on March 31, 2011.

The company has made a significant branch expansion in the gold loan business last year which resulted in 79% increase in its operating costs to Rs. 297 crore in FY12 as compared to Rs. 166 crore in FY11. This resulted in a very tepid improvement of 14% in company’s net profit after taxes (PAT) which stood at Rs. 105 crore in FY12 as compared to Rs. 92 crore in FY11.

Here is the link to check the latest audited financial results of the company ending March 31, 2012.

About the NCD Issue

The size of this NCD issue is Rs. 500 crore including a green-shoe option of Rs. 250 crore. The company plans to use the proceeds for various financing activities including lending and investments, to repay existing loans, for capital expenditures and other working capital requirements.

The bonds offer a coupon rate of 12.75% per annum in three different options – payable monthly, payable annually and cumulative annually payable on maturity. Unlike Shriram Transport Finance NCD, this issue will not offer any additional incentive to the retail investors and the same rate of interest will be offered to all the categories of investors. This uniform rate of interest should make it attractive for the Category I – institutional investors and Category II – non-institutional investors. Under the cumulative interest option, the investors will get Rs. 2054.50 at the time of maturity. The maturity period in all the three options will remain 72 months only.

OptionIIIIII
Rate of Interest12.75%12.75%12.75%
Interest PaymentMonthlyAnnualCumulative
Effective Yield13.52%12.75%12.75%
Tenure72M72M72M
Redemption AmountRs. 1000Rs. 1000Rs. 2054.50

The interest earned will be taxable as per the tax slab of the investor but the company will not deduct any TDS on it as is the case with all of the listed NCDs taken in a demat form. The company has decided to keep the minimum investment requirement of Rs. 5,000 (or 5 bonds of face value Rs. 1,000) which has made it easily investable from the small retail investors’ point of view.

Like most of the NCDs, these bonds are going to list on both the stock exchanges – NSE and BSE. Investors will have the option to apply these bonds in physical form also.
25% of the issue is reserved for the “Reserved Individual Portion” i.e. for the individual investors investing up to Rs. 5 lakhs and another 25% of the issue is reserved for the “Unreserved Individual Portion” i.e. for the individual investors investing above Rs. 5 lakhs. 40% 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. The allotment will be made on a “first-come-first-served” basis.

IIFFL is a relatively new company with a limited operational track record. The issue has been rated ‘AA-/Stable’ by CRISIL and ‘AA- (Stable)’ by ICRA. One notable point I want to emphasise here is that unlike last year and unlike all NCD issues of the past, these NCDs qualify as “Unsecured Redeemable Subordinated Debt” in nature or in other words, in the event of default, no charge upon the assets of the company would be created in connection with these NCDs.

I’ve picked this text from the DRHP

“The NCDs will be in the nature of subordinated debt and hence the claims of the holders thereof will be subordinated to the claims of other secured and other unsecured creditors of our Company. Further, since no charge upon the assets of our Company would be created in connection with the NCDs, in the event of default in connection therewith, the holders of NCDs may not be able to recover their principal amount and/or the interest accrued therein in a timely manner, for the entire value of the NCDs held by them or at all. Accordingly, in such a case the holders of NCDs may lose all or a part of their investment therein. Further, the payment of interest and the repayment of the principal amount in connection with the NCDs would be subject to the requirements of RBI, which may also require our Company to obtain a prior approval from the RBI in certain circumstances.”

Though this feature should not make this issue an untouchable one to invest in but the investors should exercise extreme caution while investing in such issues as extreme adverse business conditions related to gold loan business or housing loan business might put IIFFL’s fortunes in trouble and it would become difficult for the investors to recover their hard earned money in the form of investment.

The issue closes on September 18, 2012.

Performance of the bonds issued last year

As I mentioned in the Shriram Transport Finance NCD post also, as many as ten such NCD issues had hit the markets last year issued by companies like Shriram Transport Finance, Shriram City Union Finance, Muthoot Finance, Manappuram Finance, Religare Finvest and India Infoline Investment Services Ltd. All the issues, except Shriram Transport Finance NCDs, listed at a discount and that too at a very deep discount of 5-8% in some cases. Many of them have still not been able to recover from those losses. They are yielding higher than 13% even now.

NCDs issued last year by IIFFL offering 11.90% coupon were secured in nature and are currently yielding 13.75% under the 60 months reserved individual option with the price quoting at Rs. 1001.10. It is the most traded option among all the options offered last year.

Next 20-30 days will witness three more such NCD issues seeking your investment offered by Shriram City Union Finance, Muthoot Finance and Religare Finvest. These companies have already filed their respective draft red herring prospectus (DRHP) with SEBI and almost all the regulatory formalities have been completed. Let us see how these NCDs perform once they get listed and if they are able to give any kind of much needed relief from the sinking stock prices or escalate our pain by listing at a discount again.

Part 3: Futures and Options – How do Options work?

There are two types of Options that you can trade in – Call Options and Put Options. You buy Call Options when you think a share is going to go up in value and you buy Put options when you think a share is going to go down in value. This means that the value of your Calls go up as the stock rises, while the value of your Puts go up when your share falls.

For a retail investor, there are three common reasons for owning an Option.

Why own an Option?

1. Speculation: Options are a way to take a short term speculative position given that they can’t be held for very long.

2. Going Short: You can’t borrow and short sell shares in India, so along with selling Futures, buying a Put Option or selling a Call Option (without owning it first) is a way to go short a share or index.

3. Leverage your position: Buying a Call Option is the same as buying a share in the sense that you profit from both the trades when the share price rises then why buy a Call Option at all? Options can leverage your positions which means that you can gain or lose a lot more with the same amount of money using Options than you can by taking cash positions. This is akin to trading on the margin, and has the same effect.

Hedging is a popular reason given for owning Options but I don’t think it is all that applicable when talking about small investors, especially with a product that expires in a short time. But theoretically, hedging is also one reason to own Options.

Popular Definition and Key Terms of a Call Option

Let’s get to the popular definition of Call Options now which I will use to give an example and explain them in detail.

Call Option: A Call is a right, not an obligation to buy an underlying asset at a predetermined date at a predetermined price by paying a certain amount upfront.

Now, look at this picture below and let’s take that example to understand Call Options a little better.

Nifty Call Options
Nifty Call Options

I took this screenshot from the Options chain section of the NSE website, and this shows the Call Option details for NIFTY which expires on 25th October 2012. Every Option has an expiry date and the Option becomes worthless on that expiry date. The expiry date is the predetermined date in the definition.

This is a Call option to buy components of the Nifty, so the Nifty is the underlying asset from the definition.

The Strike Price which is the right most column in this image shows at what price you will be buying Nifty. If you look at the first row that’s a price of Rs. 3,800 and then it increases by Rs. 100 at every row, and this is the predetermined price from the earlier definition.

Now, if you look at the sixth column from the left of this picture – that’s “LTP” which stands for “Last Traded Price” and this shows you at what cost per unit the last transaction happened for this contract. A Nifty Call Option is made of 50 units, so you pay 50 times whatever is listed in the LTP column.

The Nifty closed at 5,392 this week, and let’s look at the last highlighted row in this picture which is for the strike price of 5,300 and see how that fits our definition.

This Call is a right, not an obligation to buy Nifty at a predetermined date of October 25th 2012 at a predetermined price of Rs. 5,300 by paying Rs. 232 per unit upfront.

So if you bought this contract today, you will have to pay Rs. 232 and in return you will have the right to buy a Nifty contract at Rs. 5,300 on October 25th 2012. If Nifty is at say 6,000 on that date, then your Call option will be worth a lot more than Rs. 232 because you can buy it at 5,300 and then sell it at 6,000. That’s also why in the image above you see that the price of the Options keep increasing as the Strike Price keeps going down.

If the Nifty closes below 5,300, the Option will expire worthless because why would you buy Nifty at 5,300 when you can buy it for lower in the market. The part of the definition where it says that the Option is a “right but not an obligation” comes into play here because if Nifty closes below what you paid for it then you don’t have to do anything at all as it is your right to buy, but you aren’t obligated to buy.

This means that when you buy a Call Option your loss is defined to what you paid for it. You can’t lose more than that on the transaction.

The seller of the Call however who is known as the person who writes the option doesn’t have a cap on how much he loses and can lose an unlimited amount (theoretically) in the transaction. This is because the person who writes the option has an obligation to sell you the underlying asset at the price decided in the contract.

As far as Options trading in real life is concerned you don’t actually buy and sell the underlying asset but pocket the difference between the price you paid for the Option and the price at which you sold the Option.

One last thing about this is that Call Options that are lower in value than the underlying asset or are profitable are called “In the Money” and in the image above these are highlighted in yellow. Other Options are called “Out of the Money”

Now, let’s move on to the Put option.

Popular Definition and Key Terms of a Put Option

Let’s look at how a Put option is defined now.

Put Option: A Put is a right, not an obligation to sell an underlying asset at a predetermined date at a predetermined price by paying a certain price upfront.

Now, look at this picture below and let’s take that example to understand Put Options a little better.

 

Nifty Put Options
Nifty Put Options

This screenshot is also from the Options chain section of the NSE website, and this shows the Put Option details for NIFTY which expires on 25th October 2012.

Since this is similar to Call Option but in a Put you have the right to sell instead of the right to buy, let’s look at the first highlighted row and see if we can define it the way we defined the Call Option.

This Put is a right, not an obligation to sell Nifty at a predetermined date of October 25th 2012 at a predetermined price of Rs. 5,300 by paying Rs. 81.10 per unit upfront.

So if you bought this contract today, you will have to pay Rs. 81.10 and in return you will have the right to sell a Nifty contract at Rs. 5,300 on October 25th 2012.

If Nifty is at say 4,800 on that date, then your Put option will be worth a lot more than Rs. 81.10 because you can buy it at 4,800 from the market and sell it at 5,300.

So, in the case of a Put option, you benefit from the contract when the price of the underlying goes down because you have the right to sell it at a much higher price.

Like Calls, you benefit from Puts by pocketing the difference between the price you paid and the price the Put is currently trading at – you don’t have to actually own the underlying asset and then sell it to profit.

And like Calls, Puts also limit your maximum loss to what you paid when you bought the contract. You can’t lose more money than that and this makes it a good way to go bearish on something because the other alternative is by selling a Futures contract and you can stand to lose a lot of money very quickly there if the market turns against you.

Conclusion

Options are a fascinating subject and I’ve spent many hours researching and looking at different Options strategies and trades because of this. For someone who is coming across them for the first time, they can seem a bit intimidating but once you get the hang of it they are fairly easy to understand and build positions with.

If you have any questions about this post, or any other observations, please leave a comment and I’ll answer them.

Edit: Lot size corrected.