Kosamattam Finance Dec 2018 NCD offer review - (Avoid)

•    KFL brings 14th debt offer since April 2014.
•    Despite lower rating, its coupon rates are lower than recent offers.
•    Instrument rated as IND/BBB-Stable which is considered a bit risky bet.
•    It is offering only Monthly or Cumulative interest payment schemes. .

ABOUT COMPANY:
Kosamattam Finance Ltd. (KFL) is a systemically important non-deposit taking NBFC primarily engaged in the Gold Loan business, lending money against the pledge of household jewellery ('Gold Loans') in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry. This is the 14th Debt offer from the company since April 2014.

DEBT OFFER DETALS:
For the purpose of onward lending and repayment of interest and principal of existing loans (75% of fund mobilized) as well as general corpus fund need (25% of fund mobilized), KFL is coming out with debt offer of Secured and Unsecured Redeemable Non-Convertible Debentures of Rs. 1000 each for Rs. 150 crore with a green shoe option to retain oversubscription to the tune of Rs. 150 crore making the total issue size of Rs. 300 crore (Rs. 260 cr. for Secured NCDs and Rs. 40 cr. for Unsecured NCDs). Issue opens for subscription on 27.12.18 and will close on or before 25.01.19. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiple of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE.

This issue is rated as IND BBB/Stable by India Ratings and Research Pvt. Ld. This rating indicates that instruments with such ratings are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.  Issue is solely lead managed by Vivro Financial Services Pvt.  Ltd., while Karvy Computershare Pvt. Ltd. is the registrar to the issue. Vistra ITCL (India) Ltd. is the debenture trustee.

These NCDs have tenures of 18, 24, 36, 48, 60 and 84 months. It offers coupon rates ranging from 9.50% to 10.25% based on selection of investors. Frequency of interest payments will be Monthly or cumulative as per the choice of investors. Allotment of these NCDs will be in dematerialized mode only. Application is to be made through ASBA mode only.

FINANCIAL DATA:
Its Gold Loan portfolio as of and for the six-month period ended September 30, 2018 and for the financial years ending on March 31, 2018, March 31, 2017 and March 2016 comprised of 6,83,305, 6,47,779, 5,57,478 and 4,79,540 gold loan accounts, aggregating to Rs. 212.14 cr. Rs. 205.05 cr. Rs. 173.04 cr. and Rs. 131.22 cr. respectively, which is 91.79%, 91.56%, 90.03% and 89.12% of  total loans portfolio as on those dates. As on September 30, 2018, KFL had a network of 948 branches spread in the states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry and employ 3,299 persons in business operations. The company belongs to the Kosamattam Group led by Mathew K. Cherian. Headquartered in Kottayam in the state of Kerala.

On financial front, it has posted revenue/net profits of Rs. 220.39 cr. / Rs. 10.93 cr. (FY19 – H1), Rs. 430.61 cr. / Rs. 30.82 cr.e (FY18), Td. 352.25 cr. / Rs. 15.68 cr. (FY17), Rs. 345.70 cr. / Rs. 11.23 cr. (FY16) and Rs. 257.54 cr. / Rs. 5.28 cr. (FY15). Thus it has shown consistency in growth of top and bottom lines.

For the six-month period ended September 30, 2018 and the financial years ended March 31, 2018, March 31, 2017, March 31, 2016, March 31, 2015 revenues from our Gold Loan business constituted 91.06%, 92.07%, 91.25%, 93.34%, 96.43% of our total income for the respective year. For the first six months of FY19 and FY18, FY17 and FY16, its net NPAs were 0.55%, 0.59%, 0.27% and 0.20% respectively. Post this issue its Debt/Equity ratio will increase from 7.10 to 7.97.