Sakthi Fin Feb. 24 NCD Issue review - (Avoid)

•    SFL is in the business of investment and lending, hire purchase etc. 
•    This is the 7th debt offer from SFL since February 2015. 
•    The last debt issue was in the month of April 2023. 
•    There is no harm in skipping this lower rated debt offer despite lucrative coupon rates.

ABOUT COMPANY:
Sakthi Finance Ltd. (SFL) is a Sakthi group that has well diversified business activities. SFL is an Investment and Credit 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. 

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 network of 53 branches, located in Tamil Nadu, Kerala, Andhra Pradesh, Karnataka, Maharashtra, Haryana and Union Territory of Puducherry. In addition to finance business, the company generates power from windmills and sell 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.

It is an Investment and Credit company with primary focus on financing pre-owned commercial vehicles. The company also provide 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. Its 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. It 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 branch network and customer service points. 

ISSUE DETAILS:
SFL is coming out with its 7th debt issue of rated, secured, redeemable non-convertible debentures having a face value of Rs. 1000 per NCD. The issue already opened for subscription on February 08, 2024, and will close on or before February 21, 2024. The base size of the debt issue is Rs. 100 cr. and it has green shoe option of retaining oversubscription to the tune of Rs. 100 cr., thus an overall size of this debt issue will be Rs. 200 cr. Post allotment, NCDs will be listed on BSE. SFL is spending Rs. 6 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 offer 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 of any portion in this offer. 

The debt offer has tenors of 24 months, 36 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. 

ISSUE RATING:
ICRA has assigned ICRA BBB/Stable rating to this debt issue. Such rating indicates moderate degree of safety regarding timely servicing of financial obligations and carry 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. 

FINANCIAL PERFORMANCE:
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), Rs. 191.94 cr. / Rs. 12.49 (FY23). For H1 of FY24, it has earned net profit of Rs. 7.20 cr. on a total income of Rs. 100.37 cr. It has marked setback in its bottom line for FY21 and FY22 in line with general trends of the segment on account of the pandemic. 

Its net Stage 3 Assets (i.e. Net NPAs) as a percentage of loan assets were 2.97%, 2.99% 2.14%, and 2.30%, as at September 30, 2023, March 31, 2023, March 31, 2022, and March 31, 2021, respectively. 
Its debt equity ratio of 6.12 as of September 30, 2023 will rise to 7.20 post this issue. These are the major concerns.