Edelweiss Financial NCD -Tranche II- Oct 2022 issue review - (May apply)

•    This is the fifth debt offer from the company since December 2020.
•    The group has diverse activities in the financial sector. 
•    While its rating is maintained, it has hiked coupon rates.
•    Investors looking for a steady regular income may consider parking funds.

ABOUT COMPANY:
Edelweiss Financial Services Ltd. (EFSL) was incorporated on November 21, 1995, under the name Edelweiss Capital Limited and started operations as an investment banking firm after receipt of a Category II license from SEBI. Edelweiss Capital Limited subsequently received a Category I Merchant Banker license from SEBI with effect from October 16, 2000. The name of Edelweiss Capital Limited was changed to 'Edelweiss Financial Services Limited.' with effect from August 1, 2011.

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, asset management, asset reconstruction, insurance including life and general insurance business, and wealth management businesses, which are conducted through its subsidiaries. However, the Edelweiss Wealth Management ("EWM") Business and Edelweiss Gallagher Insurance Brokers Limited ("EGIBL") have ceased to be a subsidiary with effect from March 26, 2021, and October 18, 2021, respectively. Its research-driven and client-centric approach and consistent ability to capitalize on emerging market trends have 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 216 domestic offices and three international offices (total 219 offices), in approximately 126 cities in India and three international locations and employed approximately 5,833 employees as of June 30, 2022, excluding EWM offices and employees. The group comprises 29 subsidiaries and 10 associate companies as of June 30, 2022.

This is the fifth debt issue from EFSL, the flagship company of the "Edelweiss" group. The last one was in the month of December 2021. 

ISSUE DETAILS:
EFSL is coming out with its fifth Secured-Redeemable-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. It has a shelf limit of Rs. 1000 cr. debt issue. The company is offering NCD having a 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 October 03, 2022, and will close on or before October 17, 2022. Post allotment, NCDs will be listed only on BSE. 

The company is offering coupon rates ranging from 8.85% to 10.10% and has tenures of 24 months, 36 months, 60 months, and 120 months. The interest will be paid on a 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 at least 75% of the net proceeds of this issue for the purpose of repayment/prepayment of interest and principal of existing borrowings and a maximum of up to 25% for general corporate fund needs. Allotment in all these categories will be done on a "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 Ltd. is the registrar to the issue. Beacon Trusteeship Ltd. is the debenture trustee. 

This issue is rated "Acuite AA/Negative" by Acuite Ratings & Research Ltd. and CRISIL AA-/Negative by CRISIL 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. 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, for the last three fiscals, EFSL has (on a consolidated basis) posted a total income / net profit (loss) of Rs. 9602.63 cr. / Rs. - (2043.77) cr. (FY20), Rs. 10837.84 cr. / Rs. 253.92 cr. (FY21), and Rs. 7304.59 cr. / Rs. 212.07 cr. (FY22). Thus it has posted inconsistency in its top and bottom lines. Its interest and dividend income is declining. 

For the first quarter of FY23 ended on June 30, 2022, it earned a net profit of Rs. 35.40 cr. on a total income of Rs. 1293.66 cr. Its net NPA stood at 1.62% as of March 31, 2022. Post this issue its debt-equity ratio will rise from 2.99 to 3.04.