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Sakthi Finance March 2020 NCD offer review (Avoid)

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  • This is the fourth debt offer from SFL since February 2015.

  • SFL is engaged in asset financing and power generation.

  • The company has shown inconsistency in financial performance.

  • Issue is rated ICRA/BBB stable by ICRA.

  • There is no harm in giving this issue a miss.

About Company:

Sakthi Finance Ltd. (SFL) is an asset finance company with primary focus on financing pre-owned commercial vehicles. It also provides finance for purchasing infrastructure construction equipment, multi-utility vehicles, cars, jeeps and other machinery. The finances provided are secured by lien on the assets financed. Company's target customers predominantly comprise Small / Medium Road Transport

Operators (SRTOs / MRTOs) and primarily hail from rural / semi-urban area. The SRTOs / MRTOs looks for speedy disposal of finance at competitive rates. The company has identified this opportunity and positioned itself between the organized banking sector and local money lenders by offering the finance at competitive rate with flexible and speedy lending services to customers. SFL operates primarily in the Southern region of the country mainly in the States of Tamil Nadu and Kerala through its branch network and customer service points. It has network of 49 branches, located in Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Maharashtra, Haryana and Union Territory of Puducherry. In addition to finance business, it generates power from windmills and sells the same to Tamil Nadu Electricity Board and Gujarat UrjaVikas Nigam Limited. At present, SFL has 17 windmills with an aggregate capacity of 5,150 kW located in the States of Tamil Nadu and Gujarat.

Issue Details:

To part finance its plans for onward lending and for repayment of interest and principal of existing loans (75% of the net proceeds) and general corporate funds (25% of the net proceeds), SFL is coming out with its fourth debt offer (since February 2015) of Secured/Unsecured Redeemable Non-Convertible Debentures of face value of Rs. 1000 each. The base issue size is Rs 100 cr. and the company has green shoe option to retain oversubscription up to Rs 100 cr. making the overall issue size of Rs 200 cr. The issue opens for subscription on 13.03.2020 and will close on or before 09.04.2020. 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. Application is to be made via ASBA mode and allotment as well as trading will be done only in demat mode.

Issue is solely lead managed by Dalmia Securities Pvt. Ltd. Catalyst Trusteeship Services Ltd. is the Debenture Trustee and S K D C Consultants Ltd. is the registrar to the issue. The company is spending Rs 4.00 cr. to mobilize Rs 200 cr. debt.

This issue is rated ICRA/BBB Stable by ICRA. The rating of the NCDs by ICRA indicates moderate degree of safety regarding timely servicing of financial obligations and carry moderate credit risk. This issue has tenures of 24 months, 39 months, 49 months and 62 months. It offers coupon rates from 9.50% to 10.25% with monthly, annually and cumulative interest rate payments options.

Coupon Rates for Eash Series

Series 1 Series 2 Series 3 Series 4 Series 5 Series 6 Series 7 Series 8 Series 9 Series 10 Series 11
Frequency of Interest Payment Monthly Cumulative Monthly Annually Cumulative Monthly Annually Cumulative Monthly Annually Cumulative
Minimum Application Rs 10,000(10NCDs)
In multiple of thereafter Rs 1,000(1NCDs)
Face Value/Issue Price Rs 1,000
Tenor 24 Months 24 Months 39 Months 39 Months 39 Months 49 Months 49 Months 49 Months 62 Months 62 Months 62 Months
Coupon Rate (Retail) For Category I & II/ for III & IV 9.50% NA 9.75% 9.75% NA 10% 10% NA 10.25% 10.25% NA
Amount on Maturity For Category I & II/ for III & IV Rs 1,000 Rs 1,207 Rs 1,000 Rs 1,000 Rs 1,368 Rs 1,000 Rs 1,000 Rs 1,497 Rs 1,000 Rs 1,000 Rs 1,687
Mode of Payment Through Various Options Available

Financial Performance:

As on December 31, 2019, SFL has an AUM (i.e. Stock on Hire) of Rs 1031.95 cr. Its AUM has grown from Rs 879.83 cr. as at March 31, 2015 to Rs 935.25 cr. as at March 31, 2019 at a CAGR of 1.54%. The income from hire purchase business constitutes about 93% of operating income of the Company. The income from hire purchase business increased to Rs 155.76 cr. for FY19 from Rs 139.39 cr. for FY15 at a CAGR of 2.8%.

As on December 31, 2019, the gross NPAs as a percentage of loan assets is 4.68% and Net NPAs as a percentage of loan assets is 2.46%. The Gross NPA as a percentage of loan assets was 5.05% and 5.11% as on March 31, 2019 and as at March 31, 2018 while Net NPA was 2.94% and 3.32% as on March 31, 2019 and March 31, 2018 respectively. The capital adequacy ratio, computed on the basis of applicable RBI requirements, as on December 31, 2019 is 21.95%. The capital adequacy ratios as on March 31, 2019 and March 31, 2018 were 22.35% and 17.22% respectively.

For the last three fiscals SFL has posted total income/net profits of Rs 157.96 cr. /Rs 16.00 cr. (FY17), Rs 157.08 cr. / Rs 11.93 cr. (FY18) and Rs 155.76 cr. / Rs 11.96 cr. (FY19). For the first half of FY20 it has earned net profit of Rs 5.17 cr. on a total income of Rs 81.19 cr. This shows inconsistency in its top and bottom lines.

As on 30.09.19 its paid up equity capital of Rs 50 cr. is supported by free reserves of Rs 102 cr. plus. Its current debt equity ratio of 7.41 (as on 30.09.19) will stand enhanced to 8.92 post this debt offer.

Conclusion / Investment Strategy

Financial performance is showing inconsistency with higher NPAs. Higher debt/equity ratio post issue raises concern. This offer with poor rating of BBB/Stable (Other) may be ignored. (Avoid).

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on March 12, 2020

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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