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Kosamattam Finance Mar-April 2019 NCD issue review (May apply)

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•    KFL, a frequent visitor to the debt market brings 15th debt offer since April 2014.
•    Despite lower rating, its coupon rates are lower than recent offers.
•    Instrument rated as IND/BBB which is considered a bit risky bet.
•    It is offering only Monthly or Cumulative interest payment schemes.

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 15th Debt offer from the company since April 2014.

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 crores with a green shoe option to retain oversubscription to the tune of Rs. 150 crores making the total issue size of Rs. 300 crore (Rs. 275 cr. for Secured NCDs and Rs. 25 cr. for Unsecured NCDs). The issue opens for subscription on 29.03.19 and will close on or before 26.04.19. 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 by India Ratings and Research Pvt. Ld. This rating indicates that instruments with such ratings are considered to have a moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.  The 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 9.75% to 10.25% based on the selection of investors. The 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. An application is to be made through ASBA mode only.

It's 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 December 31, 2018, KFL had a network of 940 branches (down from 948 branches as on 30.09.18) spread in the states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry and employed 3,267 persons in business operations. The company belongs to the Kosamattam Group led by Mathew K. Cherian. It is headquartered in Kottayam in the state of Kerala.

On the 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. (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 the 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.   

Conclusion / Investment Strategy

 Considering poor rating, lower coupon rates and the limited fancy of this group in the southern region only. Cash surplus risk savvy investors may consider investment in this debt offer at their own risk.

Review By Dilip Davda on March 28, 2019

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, a freelance journalist

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.


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