L & T FINANCE NCD Tranche-I issue review (Subscribe for Long Term)

  • This is the 3rd offer since March 2019 from LTFL.
  • March 19 and April 19 offers oversubscribed soon after opening.
  • This offer is rated as CRISIL/AAA Stable, CARE/AAA Stable, IND/AAA Stable.
  • Allotment will be on "First come - First served" basis.
  • Post allotment, NCDs will be listed on BSE and NSE.

About Company:

L & T Finance Limited (LTFL) is one of the leading non-banking financial services companies in India in terms of total loans outstanding, as of September 30, 2019. 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. LTFL 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. L&T entered into the financial services business in 1994. In the year 2016, its Promoter streamlined and reorganized its financing business into three primary business segments, i.e., rural, infrastructure and housing with return on equity as an important performance metric.

LTFL's rural business comprises of farm equipment finance, two-wheeler finance and micro loans. As of September 30, 2019, its total adjusted loans and advances under rural business were Rs 26,596.52 crores, with Rs 7,747.22 crores, Rs 6,008.77crores and Rs 12,840.53 crores of adjusted loans and advances under farm equipment finance, two-wheeler finance and micro loans businesses, respectively.

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 23580 employees as on 30.09.19. 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-I issue 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. The company brought its Tranche-II debt offer for Rs 1000 cr. on 8th April 2019 and was closed on 9th April 19 following oversubscription to the tune of 3.24 times. However, this time it offers lower coupon rates following five rate cuts announced by RBI in last one year.

l-t-finance-NCD

Issue Details:

The company is coming up with a Tranche-I issue of 5000000 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 1000 crore for issuance of additional NCDs, aggregating up to a total of Rs 1,500 crore. It has a shelf limit of Rs 5000 cr. The NCD Issue opens on 16th December 2019, and will close on or before 30th December 2019. LTFL is spending Rs 16.82 cr. for this issue proceeds. (On the basis of full amount of Rs 1500 cr.)

  Series 1 Series 2 Series 3 Series 4 Series 5 Series 6
Frequency of Interest Payment Monthly NA Monthly Annually Monthly Annually
Tenor 36 Months 36 Months 36 Months 60 Months 60 Months 84 Months
Coupon Rate (Retail) for Category I & II 8.25% NA 7.96% 8.45% 8.15% 8.50%
Coupon Rate (Retail) for Category III & IV 8.45% NA 8.15% 8.60% 8.29% 8.65%
Amount on Maturity for Category I & II Rs 1,000 Rs 1,268.76 Rs 1,000 Rs 1,000 Rs 1,000 Rs 1,000
Amount on Maturityfor Category III & IV Rs 1,000 Rs 1,275.81 Rs 1,000 Rs 1,000 Rs 1,000 Rs 1,000

Minimum application is to be made for Rs 10000 (i.e. 10 NCDs) and in multiple of Rs 1000 (i.e. 1 NCD) thereon, thereafter. ASBA mode is compulsory for application process. Allotment will be done on "First come - First Served" basis and that too only in demat mode.

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 8.25% to 8.50% p.a., payable monthly, annually or cumulative as per the choice of investors. LTFL has allocated 20% of the issue for QIBs/MFs, 35% for HNIs and 45% for Retail 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 I have been rated '[CRISIL] AAA (stable) (pronounced as CRISIL triple A with Stable outlook)' CARE AAA / Stable and IND AAA / Stable. The rating of NCDs by CRISIL, 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 offered through the Tranche I 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., Trust Investment Advisors Pvt. Ltd. and JM Financial Ltd. IDBI Trusteeship Services Ltd. is the Debenture Trustee and Link Intime India Pvt. Ltd. is the registrar to the issue.

Financial Performance:

LTFL performed well and has maintained growth despite lull for the sector in the recent past. For the last two fiscals, it has posted total income/net profits of Rs 5071.43 cr. / Rs 117.34 cr. (FY18) and Rs 7382.59 cr. / Rs 845.96 cr. (FY19). For the said periods its debt equity ratios were 4.28 and 5.21 respectively. It's Net NPAs of 2.81% as on 31.03.19 is declined to 2.44% as on 30.09.19. Thus despite turbulence time for NBFCs, LTFL has emerged as the best managed company on all terms.

Post issue, its debt/equity ratio will stand enhanced to 5.57 from 5.02 as on 30.09.19. On the said date LTFL's paid up equity capital was Rs 159.91 cr. and free reserves were Rs 730.13 cr.

For the last four and a half years (with H1 of FY20) LTFL has posted CAGR of 17% in its loan book, 38% CAGR in Profit after Tax. Its RoE has gone up from 9.78% for FY16 to 17.92% for FY19. For first half of FY20 it stood at 17.08%.


Conclusion / Investment Strategy

L&T group is fancied by investors across the board and as seen in the past, any offer from this group generates overwhelming response. This offer with AAA rating and lucrative coupon rates amidst interest rate lowering regime is worth subscribing for long term. (Subscribe for long term)

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Dec 11, 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 NCD Dec 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 NCD Dec 2019 worth investing. The L&T Finance NCD Dec 2019 Note sets the NCD expectations in systematic way which tells you if L&T Finance NCD Dec 2019 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in L&T Finance NCD Dec 2019 by providing NCD recommendations i.e. subscribe, avoid and neutral.


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