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Sakthi Finance NCD Review (Avoid)

  • SFL taps with NCD issue for the second time since February 2015.
  • Base size is ₹100 cr. with a green shoe option for ₹50 cr. making a total issue size of ₹150 cr.
  • SFL has shown inconsistency in its financial performance.
  • This offer is rated as ICRA/BBB Stable.
  • Post allotment, NCDs will be listed on BSE.

ABOUT COMPANY:

Sakthi Finance Limited (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. SFL'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. It 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 47 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 Urja Vikas Nigam Limited. At present, SFL has 17 windmills with an aggregate capacity of 5150 kW located in the States of Tamil Nadu and Gujarat.

ISSUE DETAILS:

The company is coming up with an issue of 1000000 Secured Redeemable Non-Convertible Debentures ("NCDs") of the face-value of ₹1000 each. The NCD Issue aggregates to ₹100 crore, with an option to retain over-subscription up to ₹50 crore for issuance of additional NCDs, aggregating up to a total of ₹150 crore. The NCD Issue opens on 10th April 2019, and will close on or before 09th May 2019.

These NCDs, bearing a fixed rate of interest, has tenures of 24 months, 36 months, 48 months and 61 months. Coupon rates shall be ranging from 9.50% to 10.25% 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 on-ward lending, financing and for repayment / prepayment of principal and interest of existing borrowings (including redemption of NCDs which would become due for redemption) of the Company (up to 75%) and the rest (up to 25%) for general corpus fund needs.

The NCDs to be issued have been rated 'ICRA BBB (stable), "(pronounced as ICRA triple B with Stable outlook)". The rating of NCDs by ICRA indicates moderate degree of safety regarding timely servicing of financial obligations and carry moderate credit risk.

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

The specific terms of the Secured NCDs are mentioned below:

 

Options

I#

II

III

IV@

V

VI

VII@

VIII

IX

X#

XI

Frequency of interest payment

Monthly

Cumulative

Monthly

Annually

Cumulative

Monthly

Annually

Cumulative

Monthly

Annually

Cumulative

Nature of Instruments

Secured NCD

Unsecured NCD

Category of investor who can apply

All categories of Investors (I, II and III)

Minimum application

₹10,000 (10 NCDs) (for all options of NCDS including Unsecured NCDs, namely option I X, option X, option XI, either taken individually or collectively)

In multiples of

₹1,000 (1 NCD) after minimum application

Face value of Secured / Unsecured NCDs

₹1,000

Issue Price Secured / Unsecured NCD

₹1,000

Tenor from Deemed Date of Allotment (in months)

24

24

36

36

36

48

48

48

61

61

61

Coupon (%) for all Category of Investor(s)

9.50

N.A.

9.75

9.75

N.A.

10.00

10.00

N.A.

10.25

10.25

N.A.

Effective Yield (per annum) for all Category of Investor(s)

9.50

10.33

9.75

10.11

11.17

10.00

10.38

12.11

10.25

10.65

13.24

Mode of interest payment*

Through various modes of payments available

Amount Secured/ Unsecured NCD) on maturity for all Category of Investor(s) *

₹1,000

₹1,207

₹1,000

₹1,000

₹1,335

₹1,000

₹1,000

₹1,485

₹1,000

₹1,000

₹1,673

Maturity Date (from Deemed Date of Allotment)(in months)

24

24

36

36

36

48

48

48

61

61

61

Company shall allocate and allot Option II NCDs wherein the Applicants have not indicated their choice of the relevant NCD Option.

@ The interest will be calculated on quarterly compounding basis and will be paid at the end of each year;

* Subject to applicable tax deducted at source, if any.

The Secured NCDs offered through the issue are proposed to be listed on the BSE. The issue is solely by Dalmia Securities Pvt. Ltd.; Catalyst Trusteeship Ltd. is the Debenture Trustee while S. K. D. C. Consultants Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE:

As on September 30, 2018, SFL has an AUM (i.e. Stock on Hire) of ₹92,385.67 lakh. Its AUM has grown from ₹75,035.05 lakh as at March 31, 2014 to ₹90,161.19 lakh as at March 31, 2018 at a CAGR of 4.70%. The income from hire purchase business constitutes about 94% of operating income of the Company. The income from hire purchase business increased to ₹15,708.40 lakh for FY 2018 from ₹12,644.05 lakh for FY 2014 at a CAGR of 5.58%. As on September 30, 2018, the gross NPAs as a percentage of loan assets are 5.72% and Net NPAs as a percentage of loan assets is 3.70%. The Gross NPA as a percentage of loan assets was 5.11% and 4.28% as on March 31, 2018 and March 31, 2017 respectively. The Net NPA as a percentage of net loan assets was 3.32% and 3.00%, as on March 31, 2018 and March 31, 2017 respectively. The capital adequacy ratio, computed on the basis of applicable RBI requirements, as on September 30, 2018 is 16.27%. The capital adequacy ratio as on March 31, 2018 and March 31, 2017 was 17.22% and 19.73% respectively.

For last three fiscals, SFL has posted total revenue/net profits of ₹172.06 cr. / ₹13.28 cr. (FY16), ₹170.55 cr. / ₹16.00 cr. (FY17) and ₹168.56 cr. / ₹11.93 cr. (FY18). For first half ended on 30.09.18 it has posted net profit of ₹6.87 cr. on total revenue of Rs.81.97 cr. Thus it has inconsistent financial track record. As on 30.09.18 it's paid up equity capital of ₹65 cr. has a support of Rs.108.74 cr. as free reserves.

Its current debt equity ratio of 5.81 (as on 30.09.18) will stand enhanced to 6.77 post issue.


Conclusion / Investment Strategy

Considering inconsistent financial track record, poor rating, there is no ham in giving this issue a miss. (AVOID).

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Apr 10, 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 Sakthi Finance 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 Sakthi Finance NCD April 2019 worth investing. The Sakthi Finance NCD April 2019 Note sets the NCD expectations in systematic way which tells you if Sakthi Finance NCD April 2019 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Sakthi Finance NCD April 2019 by providing NCD recommendations i.e. subscribe, avoid and neutral.


1 Comments

Navkant
1. Navkant  Apr 10, 2019 19:50 Reply
Top Contributor Top Contributor (300+ Posts, 300+ Likes)
Thanks Dilip



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