L&T Finance NCD Tranche-II issue review (Subscribe for Long Term)

  • LTFL taps with Tranche-II with a shelf overall limit of Rs. 5000 cr.
  • Tranche-I got overwhelming response and was closed on 2nd day of subscription.
  • This offer is rated as ICRA/AAA Stable, CARE/AAA Stable, IND/AAA Stable.
  • Post allotment, NCDs will be listed on BSE and NSE.

About L&T Finance

L & T Finance Limited (LTFL) is one of the leading private non-banking financial services companies in India in terms of total loans outstanding, as of December 31, 2018. Its Promoter is registered with the RBI as a Non-Banking Finance Company – Core Investment Company ("NBFC-CIC") conducting business through its wholly-owned subsidiaries. The Company is a part of the larger L&T group which is one of the leading business conglomerates in India, with presence across infrastructure, power, heavy engineering, electrical and automation, hydrocarbons, IT and technology services, financial services, project development, metallurgical and material handling, realty, shipbuilding, construction equipment, machinery and industrial products sectors. It tapped debt market with its maiden NCD offer in August 2009 and then in February 2010 and got overwhelming response.

Company's operations are spread throughout India and it has 223 branches in 218 cities across 21 states and 3 union territories, as of December 31, 2018. In addition, for its micro loans business it has 1,181 meeting centre covering 274 districts across 14 states in India, as of December 31, 2018. The company has 19,649 employees as of December 31, 2018. Each of its businesses are led by senior executives who are, generally, also responsible for certain organizational functions at the group level. Together, they have demonstrated the ability to manage and grow company's operations. According to management, LTFL enjoys surplus liquidity at any given point of time and thus leverages its cost of borrowing and lending with net interest margins of around 5%.

The company came up with Tranche-Iissue on 6th March 2019 that was oversubscribed on the first day itself and was closed on 07th March 2019. For Tranche I against offer size of Rs. 1500 cr. company mobilized over Rs. 2225 cr. Within a short span, LTFL is bringing its Tranche-II debt offer. However, this time it offers lower coupon rates.

Public Issue Details

The company is coming up with a Tranche-II issue of 50,00,000 Secured Redeemable Non-Convertible Debentures ("NCDs") of the face-value of Rs. 1,000 each. The NCD Issue aggregates to Rs. 500 crore, with an option to retain over-subscription up to Rs. 500 crore for issuance of additional NCDs, aggregating up to a total of Rs. 1,000 crore. It has a shelf limit of Rs. 5000 cr. The NCD Issue opens on 08th April 2019, and will close on or before 18h April 2019.

These NCDs, bearing a fixed rate of interest, has three tenures i.e. 3 yrs, 5 yrs and 8 yrs. Coupon rates shall be ranging from 8.48% to 8.85% p.a., payable monthly, annually or cumulative as per the choice of investors.

Net proceeds of the issue will be utilized for the purpose of onward lending, financing, refinancing the existing indebtedness of L&T Finance Limited - payment of the interest and/or repayment /prepayment of principal of borrowings (up to 75%) - and the rest for general corporate purpose.

The NCDs proposed to be issued under Tranche II have been rated '[ICRA] AAA (stable) (pronounced as ICRA triple A with Stable outlook)' CARE AAA / Stable and IND AAA / Stable. The rating of NCDs by ICRA, CARE and India Ratings indicate that instruments with this rating are considered to have highest degree of safety regarding timely servicing of financial obligations and carry lowest credit risk.

The Secured NCDs, bearing a fixed rate of interest, are being offered under seven different options. The terms of each options of NCDs, offered under Tranche 2 Issue are set out below:

L&T Finance NCD Terms

Series

I

II

III*

IV

V

VI

VII

Frequency of Interest Payment

Annual

NA

Annual

Monthly

NA

Annual

Monthly

Minimum Application

Rs 10,000 (10 NCDs) across all Series

Face Value/ Issue Price of NCDs (Rs / NCD)

Rs 1,000

In Multiples of thereafter (Rs )

Rs 1,000 (1 NCD)

Tenor

3 years

3 years

5 years

5 years

5 years

8 years

8 years

Coupon (% per annum) for NCD Holders in Category I & II

8.70%

NA

8.80%

8.48%

NA

8.85%

8.52%

Coupon (% per annum) for NCD Holders in Category III & IV

8.90%

NA

9.00%

8.66%

NA

9.05%

8.70%

Effective Yield (% per annum) for NCD Holders in Category I & II

8.69%

8.70%

8.79%

8.81%

8.80%

8.84%

8.86%

Effective Yield (% per annum) for NCD Holders in Category III & IV

8.89%

8.90%

8.99%

9.00%

9.00%

9.04%

9.05%

Mode of Interest Payment

Through various mode available

Amount (Rs / NCD) on Maturity for NCD Holders in Category I & II

Rs 1,000

Rs 1,284.66

Rs 1,000

Rs 1,000

Rs 1,525.27

Rs 1,000

Rs 1,000

Amount (Rs / NCD) on Maturity for NCD Holders in Category III & IV

Rs 1,000

Rs 1,291.77

Rs 1,000

Rs 1,000

Rs 1,539.36

Rs 1,000

Rs 1,000

Put and Call Option

NA

NA

NA

NA

NA

NA

NA

*Our Company would allot the series III NCDs, as specified in the Tranche 2 Prospectus to all valid Applications, wherein the Applicants have not indicated their choice of the relevant Series of NCDs.

The Secured NCDs offered through the Tranche 2 are proposed to be listed on the BSE & NSE. The Lead Managers to the Issue are Edelweiss Financial Services Ltd., A K Capital Services Ltd., Axis BankLtd. and Trust Investment Advisors Pvt. Ltd. Catalyst Trusteeship Ltd. is the Debenture Trustee and Link Intime India Pvt. Ltd. is the registrar to the issue.

Financial Performance

LTFL has (on a consolidated basis) performed well and has maintained growth despite lull for the sector in the recent past. For last two fiscals, it has posted total income/net profits of Rs. 4144.98 cr. / Rs. 42.66 cr. (FY17) and Rs. 5245.69 cr. / Rs. 332.25 cr. (FY18). For the said periods, its gross NPAs were 6.51% and 6.07% while Net NPAs were 3.99% and 2.81% respectively. For first nine months of FY19 it has (on standalone basis) earned net profit of Rs. 687.20 cr. on a total income of Rs. 5097.20 cr. Post issue, its debt/equity ratio will stand enhanced to 5.40 from 4.84 as on 31.12.18. On the said date LTFL's paid up equity capital was Rs. 159.91 cr. and free reserves were Rs/740.73 cr.

Company's operations are spread throughout India and it has 223 branches in 218 cities across 21 states and 3 union territories, as of December 31, 2018. In addition, for its micro loans business it has 1,181 meeting centers covering 274 districts across 14 states in India, as of December 31, 2018. The company has 19,649 employees as of December 31, 2018. Each of its businesses are led by senior executives who are, generally, also responsible for certain organizational functions at the group level. Together, they have demonstrated the ability to manage and grow company's operations. Company is in the business of financing, and as part of its business operations, it raises/avails funds for onward lending, for repayment/ prepayment of borrowings and general corporate purposes.


Conclusion / Investment Strategy

After long AAA debt offer is coming to tap the market and that too from the house of Larsen & Toubro, with lucrative coupon rates. Although coupon rates are lowered this time, investors looking at regular monthly income may consider investment for medium to long term. (Subscribe for long term)

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Apr 4, 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.

Email: dilip_davda@rediffmail.com

The L&T Finance Ltd. NCD April 2019 Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered NCD Analysts tells you if L&T Finance Ltd. NCD April 2019 worth investing. The L&T Finance Ltd. NCD April 2019 Note sets the NCD expectations in systematic way which tells you if L&T Finance Ltd. NCD April 2019 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in L&T Finance Ltd. NCD April 2019 by providing NCD recommendations i.e. subscribe, avoid and neutral.


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