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Navi Finserv NCD issue review (May apply)

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•    NFL distributes personal loans through a tech-driven NAVI app. 
•    It has posted a loss for the 9M of FY22 which raises concern.
•    The company offers lucrative coupon rates with A/Stable ratings. 
•    Cash surplus investors looking for a steady income may consider an investment.

Navi Finserv Ltd. (NFL) is a non-deposit taking, systemically important NBFC registered with RBI and a wholly-owned subsidiary of Navi Technologies Ltd. (NTL). NTL is a technology-driven financial products and services company in India focusing on the digitally connected young middle-class population of India. It offers lending products like personal loans and home loans under the "Navi" brand. NFL also offers microfinance loans, under the "Chaitanya" brand through a Subsidiary, Chaitanya India Fin Credit Ltd. (CIFCL).

NFL launched personal loans product under the "Navi" brand in April 2020. Under this business, it extends instant personal loans up to Rs. 2.0 million with tenors of up to 84 months through an entirely digital Navi Apponly process. Since its launch and up to December 31, 2021, it has disbursed 481,121 personal loans amounting to Rs. 2246.31 cr. During the nine months ended December 31, 2021, the company disbursed 308,383 personal loans amounting to Rs. 1572.44 cr. with an average ticket size of Rs. 50,990.

As of December 31, 2021, Company's personal loans business had an AUM of Rs. 1418.69 cr. Currently, it provides home loans to customers across 8 cities and plans to expand its presence through digital as well as builder tie-ups. In the long run, NFL's aim is to expand its product portfolio by launching adjacent lending products to capture a larger portion of the wallet share of customers.

As of December 31, 2021, it had 411 branches and 3,698 employees (of which, 2,362 are relationship officers) spread across 118 districts in 10 states in India for the microfinance loans business. As of March 31, 2022, the Company had secured borrowings of Rs. 2042.19 cr. and unsecured borrowings of Rs. 732.79 cr.

To part finance its needs for onward lending and financing (at least 75% of the net proceeds) and general corporate purposes (maximum up to 25% of the net proceeds), NFL is coming out with a maiden debt offer of Secured, Rated, Listed, Redeemable Non-convertible debentures (NCD) having a face value of Rs. 1000 per NCD. The base size of this debt offer is Rs. 300 cr. and with a greenshoe option of retaining an additional subscription of Rs. 300 cr. the overall issue size is Rs. 600 cr. The issue opens for subscription on May 23, 2022, and will close on or before June 10, 2022. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiples of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE and NSE. NFL is spending Rs. 8.93 cr. for this debt issue process. 

The issue is jointly lead managed by A K Capital Services Ltd. and J M Financial Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. Catalyst Trusteeship Services Ltd. is the debenture trustee. 

This debt offering is rated as IND A/Stable by India Ratings and Research Pvt. Ltd. Instruments with this rating are considered to have an adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. The rating provided by India Ratings & Research Pvt. Ltd. may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independently of any other rating. These ratings are not a recommendation to buy, sell or hold securities and investors should make their own decisions.

This debt offer does not have Put and Call options. It has a tenor of 18 months and 27 months. GTL offers a coupon rate ranging from 9.20% to 9.75% depending on the series opted by the investors. The interest payment options are Monthly or Annually as per the options selected by the investors. The company has allocated 20% for Institutional investors, 20% for non-institutional investors, 30% for HNIs and 30% for retail investors. 

On the financial performance front, NFL has (on a consolidated basis) posted a total income/net profit of Rs. 565.24 cr. / Rs. 118.17 cr. for FY21 and for the first nine months of FY22 ended on December 31, 2021, it has marked a loss of Rs. - (34.43) cr. on a total income of Rs. 552.78 cr. Thus its loss for FY22-9M raises concern. 

As of December 31, 2021, and March 31, 2021, its gross NPA to total AUM ratio for personal loans business was 1.12% and 4.96%, respectively, and net NPA to net AUM was 0.08% and 0.45%, respectively.

Conclusion / Investment Strategy

NFL is a technology-driven financial services company. Though it marked steady growth till FY21, it posted losses for 9M of FY22 which raises concern. It offers lucrative coupon rates with an A/Stable rating. Cash surplus investors looking for steady long term rewards may consider an investment.

Review By Dilip Davda on May 21, 2022

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 before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

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.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

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