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Sakthi Finance April 2022 NCD issue review (Avoid)

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•    This is the fourth debt offer from SFL since February 2015. 
•    Last debt offer from the company was in June 2021. 
•    SFL is a south centric financial service company of Sakthi Group.
•    It has suffered a setback for FY21 in its net earnings despite growth in the top line.
•    Rating to this debt offer is poor and hence there is no harm in ignoring it. 

Sakthi Finance Ltd. (SFL) is part of the "Sakthi Group" of companies based in Coimbatore, South India, a reputed and well-known Industrial conglomerate having a major presence in sugar, industrial alcohol, automobiles distribution, auto components, dairy, co-generation, wind energy and transportation.

SFL is an Investment and Credit company with a 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 a 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 areas. The SRTOs / MRTOs look for speedy disposal of finance at competitive rates. It has identified this opportunity and positioned itself between the organized banking sector and local money lenders by offering finance at a 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 branch networks and customer service points. It has a network of 51 branches, located in Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Maharashtra, Haryana and the Union Territory of Puducherry. In addition to finance business, SFL generates power from windmills and sells it to Tamil Nadu Electricity Board and Gujarat Urja Vikas Nigam Limited. At present, it has 17 windmills with an aggregate capacity of 5,150 kW located in the States of Tamil Nadu and Gujarat. Its total employee strength was 510 as of December 31, 2021.

The company is coming out with its fourth debt offer since February 2015. This offer of Secured Redeemable Non-Convertible Debentures is for Rs. 50 cr. with a green-shoe option for retaining oversubscription to the tune of Rs. 50 cr. Thus the overall size of this offer shall be Rs. 100 cr. The issue opens for subscription on April 11, 2022, and will close on or before May 04, 2022. The minimum application to be made is 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. SFL will be spending Rs. 2.68 cr. for this debt offer and from the residual funds, it will utilize at least 75% for the purpose of onward lending, financing and repayment/prepayment of certain borrowings and up to 25% for the general corporate purpose. 

The issue is solely lead managed by Dalmia Securities Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue while Catalyst Trusteeship Ltd. is Debenture Trustee for this company. 

This issue is rated ICRA BBB (Stable) by ICRA Ltd. The rating of the NCDs by ICRA indicates a moderate degree of safety regarding timely servicing of financial obligations and carries moderate credit risk. The rating provided by ICRA may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independently of any other rating. This rating is not a recommendation to buy, sell or hold the NCDs and investors should make their own decisions.

This offer carries coupon rates ranging from 8.50% to 10.00% and has tenors of 24 months, 36 months, 48 months and 60 months. The interest payment frequency is either Monthly or Cumulative as per the selection of series by the investors. 

On the financial performance front, for the last two fiscals, SFL has posted total income/net profits of Rs. 168.70 cr. / Rs. 11.10 cr. (FY20), Rs. 171.00 cr. / Rs. 9.40 cr. (FY21). For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 7.20 cr. on a total income of Rs. 135.10 cr. It has suffered a setback for FY21 in its net margins. 

Post this NCD issue, its current debt-equity ratio of 6.65 will stand enhanced to 7.27. Its net NPAs are on an average above 2.6% for the reported financial periods. Its NPA as of September 30, 2021, stood at 2.55%. This raises concern for this south centric player despite its well-known parentage.

Conclusion / Investment Strategy

Though the parentage of this company is a well-known Sakthi Group of the south, its limited play in the southern region and rising NPAs raise concern. It also suffered a setback for FY21 in its net earnings. Its BBB (Stable) rating is considered to be poor and hence, there is no harm in skipping this debt offer despite lucrative coupon rates.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on April 10, 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: ).

The Sakthi Finance NCD April 2022 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 2022 worth investing. The Sakthi Finance NCD April 2022 Note sets the NCD expectations in systematic way which tells you if Sakthi Finance NCD April 2022 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Sakthi Finance NCD April 2022 by providing NCD recommendations i.e. subscribe, avoid and neutral.