India Infoline NCD Review

This is another post from the Suggest a Topic page, and today we’re going to take a look at the India Infoline Investment Services Ltd. NCD (Non Convertible Debenture), which is going to open shortly.

The first thing to note about this NCD is that it is not the NCD of India Infoline, but of their wholly owned NBFC (Non Banking Financial Company) called India Infoline Investment Services Ltd.

IIFL owns 76.74% in this NBFC, and while India Infoline Investment Services (the NBFC) source a lot of their clients and draw on the goodwill of the parent company, this is a different company from the parent. The remaining stock is also owned by another IIFL subsidiary called India Infoline Marketing Services.

For simplicity sake I’ll use India Infoline to describe the NBFC in this post.

India Infoline is going to issue NCDs worth Rs. 3,750 million, with a green-shoe option of another Rs. 3,750 million, and that makes it a reasonably large NCD issue compared to the size of the company. The issue will open on August 4th 2011, and will close on August 12th 2011.

As a NBFC, their primary business is lending, and their total income for the fiscal 2011 was Rs. 4,697.76 million and profit after tax was Rs. 922.48 million, which is a pretty decent profit margin of 19.2%. 99% of the loans are secured, and they have a CAR (Capital Adequacy Ratio) of 29.95%.

Their primary business is lending in these 4 segments:

  1. Mortgage loans: Housing loans and loans against property. This forms 60% of their loan book.
  2. Capital Market Finance: Loans against shares, promoter funding, margin funding IPO financing etc. and this forms 35% of their loan book.
  3. Gold loans: Loans given against gold jewelery. This is about 4% of their business.
  4. Healthcare Finance: This is a new segment, and it looks like it doesn’t contribute a lot to their business currently.

Here is a break – up of their total loan book for fiscal 2011.

India Infoline Loan Breakup 2011
India Infoline Loan Breakup 2011

When you look at these segments you realize that while almost all their loans are secured, they are secured against assets that have volatile prices. Stocks are very volatile, and with the current Greater Noida issue going on – you can’t be too sure of property either.

The issue has been rated AA- or Stable by ICRA, and CARE AA- by CARE.

The prospectus says that while a cover of 1.10 is needed to be made on this issue as this is a secured debt issue, there will be other creditors who will have pari passu charge over the security that they provide. This means that other creditors may also have equal rights on the security provided by the company for this issue, and that’s a definite risk.

So, you see the good thing going on for them are good profit margin and good Capital Adequacy Ratio. What takes away from this is the fact that the sectors that they lend to are inherently volatile and risky.

Now, let’s take a look at the issue itself.

India Infoline NCD Issue

The India Infoline NCD will have three options for investors with different maturities and rate of interests. Two of them will pay interest every year, while a third will pay a lump – sum at the end of the maturity period.

Here are the details of the three options.

India Infoline NCD Details
India Infoline NCD Details

All these series will list on NSE, and BSE shortly after the issue is closed, and the allotment will be made on first – come first serve basis.

The last NCD issues have been over subscribed by quite a bit, but they were graded higher by the credit rating agencies, and had more attractive yields as well.

If you look at these yields then they are not that much more than some of the best interest rates given by fixed deposits these days. A lot of banks give within 2% of these yields, and a fixed deposit in a bank is comparatively safer as well. In fact the last big NCD issue – Shriram Transport Finance was giving 11.60% interest, and they were rated CARE AA+ which is higher than this issue.

So overall, while evaluating the issue, you should really consider how much money you are going to put in this, how much extra interest can that earn you, and whether that’s enough for you, or if you’d rather wait for another NCD issue to come because a lot of companies do seem to be interested in issuing them this year.

49 thoughts on “India Infoline NCD Review”

  1. I have taken gold loan from IIFL and till now paid their interest in a regular manner. Now if I don’t want to continue the loan and asked IIFL to sell the gold and return the excess amount to me after charging their cost , is it possible?

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