Edelweiss Financial NCD (August 2021) issue review (May apply)

This is the third debt offer from the company since December 2020.
The group has diverse activities in the financial sector.
On a consolidated basis it has suffered a severe setback for FY20.
The company replaced RTA from Link Intime to KFin Techno for this offering.
EFSL offering a lucrative coupon rate despite higher rating is raising eyebrows.

ABOUT COMPANY

Edelweiss Financial Services Ltd. (EFSL), the flagship company of 'Edelweiss' group is coming out with its third debt offer this month. Last one was in the month of April 2021.

After commencing the business as an investment banking firm, the Company, through its subsidiaries has now diversified its businesses to include credit including retail and corporate credit, wealth management, asset management, asset reconstruction and insurance including life and general insurance businesses, which are conducted through its subsidiaries. It believes that research driven and client-centric approach and consistent ability to capitalize on emerging market trends has enabled it to foster strong relationships across corporate, institutional (both domestic and international), high net worth individuals and retail clients.

EFSL has a Pan-India and international network with approximately 224 domestic offices, including two offices in Mumbai, and 10 international offices (total 234 offices), in approximately 130 cities in India and six international locations and employed approximately 6,069 employees as at March 31, 2021. The group comprises 33 subsidiaries as at June 30, 2021. Thus its total offices, employees count and subsidiary tally has come down between December 31, 2020 till June 30, 2021.

EFSL constantly pursues innovation and invests in new ideas, newer products, and newer alternate channels of delivery and so on. The company seek to add significant value by providing new and innovative products and services and are committed to focusing on six key vectors in journey into the future - people management, cost management, risk management, technology, customer experience and innovation - while adhering to its business principles - which emphasize placing its clients' interests first, commitment to excellence and innovation and teamwork.

ISSUE DETAILS

EFSL is coming out with its third Non-Convertible Debenture (NCD) issue worth Rs. 200 crores with a green shoe option of retaining oversubscription to the tune of Rs. 200 crores, thus taking the total issue size to Rs. 400 cr. The company is offering NCD having face value of Rs. 1000 each. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiples of 1 NCD (Rs. 1000) thereon, thereafter. The issue is opening for subscription on August 17, 2021, and will close on or before September 06, 2021. Post allotment, NCDs will be listed only on BSE.

The company is offering coupon rates ranging from 8.75% to 9.70% and having tenures of 36 months, 60 months and 120 months. The interest will be paid on monthly, annually or cumulative basis as per the choice of investors.

The company is likely to spend around Rs. 9.00 cr. for the entire issue process worth Rs. 400 crores. The company is going to use 75% of the net proceeds of this issue for the purpose of repayment/prepayment of interest and principal of existing borrowings and 25% for general corporate fund needs. Allotment in all these categories will be done on 'First come - First served' basis. EFSL has reserved 10% for QIBs, 10% for Corporate, 40% for HNIs and 40% for retail investors.

The issue is solely lead managed by Equirus Capital Pvt. Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue. Beacon Trusteeship Ltd. is the debenture trustee. For this offer the company has changed its RTA from Link Intime to KFin Technologies.

This issue is rated 'Acuite AA' by Acuite Ratings & Research Ltd. and ICRA A+/Negative by ICRA Ltd. Instruments with this rating are considered to have adequate/high degree (respectively) of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. This time the company has replaced rating agency BWR by ICRA.

Recent change overs in rating agencies and RTA raises concern.

The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating.

FINANCIAL PERFORMANCE

On the financial performance front, on a consolidated basis, EFSL has posted total income / net profit (loss) of Rs. 11161.23 cr. / Rs. 995.17 cr. (FY19), Rs. 9602.63 cr. / Rs. - (2045.24) cr. (FY20). And Rs. 10848.85 cr. / Rs. 265.34 cr. (FY21). Thus it has posted inconsistency in its top and bottom lines. Mega losses for FY20 still spills over on last three fiscal's performances.

As of July 01, 2021, on a consolidated basis, its equity capital stands at Rs. 93.65 cr. As of March 31, 2021, its net NPAs and debt equity ratio stood at 4.10% and 3.70. Post this issue its debt equity ratio will rise to 3.76.

CONCLUSION

Conclusion / Investment Strategy

Based on rating the coupon rates are very attractive and tempting. The company has also changed one of its rating agency as well as RTA for this issue, which is raising concerns. Though debt instruments with AA or AAA are most preferred by investors, this AA rated instrument with higher coupon rates may attract investment from those who seek regular interest income in the falling interest rate regime. Those who have appetite for risk and surplus funds may consider investment in this offer.

Review By Dilip Davda on August 16, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

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