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Sakthi Finance NCD April 23 issue review (Avoid)

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•    SFL is in the business of investment and lending, hire purchase etc. 
•    This is the 6th debt offer from SFL since February 2015. 
•    The last debt issue was in the month of April 2022. 
•    Its financial performance is average with rising NPAs.
•    There is no harm in skipping this lower-rated debt offer.

Sakthi Finance Ltd. (SFL) is a Sakthi group with diversified business activities. 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 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 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 its branch network and customer service points.

SFL 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, it generates power from windmills and sells it to Tamil Nadu Electricity Board and Gujarat Urja Vikas Nigam Limited. The company currently has 17 windmills with an aggregate capacity of 5,150 kW located in the States of Tamil Nadu and Gujarat.

As on December 31, 2022, it has an Asset Under Management ("AUM") (i.e. Stock on Hire) of Rs. 1160.22 cr., and AUM (net of ECL provisions) has grown from Rs. 1070.46 cr. as of March 31, 2020, to Rs. 1103.11 cr. as at March 31, 2022, at a CAGR of 1.51%. The income from the hire purchase business constitutes about 95.61% of the operating income of the Company for the FY ended March 31, 2022. For FY 2022, the income from the hire purchase business was Rs. 173.39 cr. against Rs. 160.05 cr. for FY 2020, registering a marginal growth of 8.34%. As of December 31, 2022, it had 505 employees on its payroll.

SFL is coming out with its 6th debt issue of secured, redeemable non-convertible debentures having a face value of Rs. 1000 per NCD. The issue opens for subscription on April 17, 2023, and will close on or before April 28, 2023. The base size of the debt issue is Rs. 100 cr. and it has a green shoe option of retaining oversubscription to the tune of Rs. 100 cr., thus the overall size of this debt issue will be Rs. 200 cr. Post allotment, NCDs will be listed on BSE. SFL is spending Rs. 4 cr. for this debt issue process. From the net proceeds, it will utilize at least 75% for the purpose of onward lending, financing, repayment/prepayment of existing borrowings and up to 25% for general corporate purposes.

This debt offering is solely lead managed by Bonanza Portfolio Ltd., and Link Intime India Pvt. Ltd. is the registrar of the issue. Catalyst Trusteeship Ltd. is the debenture trustee. There is no reservation about any portion of this offer. 

The debt offer has tenors of 24 months, 36 months, 48 months, 60 months and 85 months. It offers a coupon rate ranging from 9.00% to 10.25% with interest payment options of Monthly and Cumulative. The minimum investment is to be made for Rs. 10000 (i.e. 10 NCDS) and in multiple of Rs. 1000 (i.e. 1 NCD) thereon, thereafter. 

ICRA has assigned ICRA BBB/Stable rating to this debt issue. Such rating indicates a moderate degree of safety regarding the 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 take their own decisions. 

On the financial performance front, SFL has posted a total income/net profit of Rs. 170.23 cr. / Rs. 11.18 cr. (FY20), Rs. 171.34 cr. / Rs. 9.26 cr. (FY21), and Rs. 181.35 cr. / Rs. 9.52 cr. (FY22). For 3Qs of FY23, it earned a net profit of Rs. 9.04 cr. on a total income of Rs. 142.83 cr. It has marked a setback in its bottom line for FY21. 

Its net NPA increased from 2.14% as of March 31, 2022, to 2.66% as of September 30, 2022. Its debt-equity ratio as of September 30, 2022, at 6.24 will increase to 7.39 post this issue. This raises concern.

Conclusion / Investment Strategy

SFL’s this debt offer offers higher coupon rates, but a poor rating of BBB/Stable raise alarm as it has moderate risks in servicing and credit. There is no harm in skipping this a bit risky debt offer.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on April 16, 2023

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 2023 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 2023 worth investing. The Sakthi Finance NCD April 2023 Note sets the NCD expectations in systematic way which tells you if Sakthi Finance NCD April 2023 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Sakthi Finance NCD April 2023 by providing NCD recommendations i.e. subscribe, avoid and neutral.