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SREI Equipment Fin. Aug 2019 NCD Tranche I issue review (Subscribe for Long Term)

  • SEFL is SREI group financing arm for CME sectors.

  • This is the 6th debt offer from the company since April 2015.
  • This Offer has lower grading of AA/Negative by BWR and ACUITE.
  • Issue is for secured NCDs portion only, this time.

About Company:

SREI Equipment Finance Ltd. (SEFL) is one of the leading financier in the Construction, Mining and allied Equipment ("CME") sector in India. This sector primarily consists of equipment used for earthmoving and mining, concreting, road building, material handling, material processing and allied activities. SEFL's product offerings include loans, for new and used equipment, and leases. In the 30 years strong period of Srei Group's operations, it has demonstrated clear market differentiation through its holistic approach to providing equipment financing solutions. This approach covers the value chain in the equipment life cycle by providing financing to and sustaining continuous engagement with customers across equipment procurement, deployment, maintenance and exit stages.

The equipment-centric services it provides include preferred financing schemes offered by SEFL in conjunction with Original Equipment Manufacturers ("OEMs"), equipment deployment assistance during project downtime, spare parts financing, exchange programme financing and used equipment financing. Company's partnerships with OEMs are key to its equipment-centric business model. These include various arrangements such as general associations, preferred financier associations (with or without risk-sharing arrangements) and private label associations.

SEFL offers innovative financing solutions to equipment purchasers under these arrangements, which it believes are relatively new to the Indian equipment financing market. As of March 31, 2019, the company had 272 OEM partnerships. It believes that the company is well positioned to sustain and develop OEM partnerships due to its significant CME market share, pan-India presence and continuous customer engagement approach.

As of March 31, 2019, it had more than 63,000 current customers. The company caters to a wide range of customers, from 'First Time Users' ("FTUs") and 'First Time Buyers' ("FTBs") to fleet owners and mid-size contractors to large corporations and project owners. Supported by its holistic equipment financing solutions approach, our customer-focused approach has helped it retaining its customers as their business has grown in size as well as expand its customer base through their referrals. In Fiscals 2019 and 2018, over 60% of SEFL's total disbursements were to repeat customers. As of March 31, 2019, it had 117 SEPs across India.

As of March 31, 2019, the company was present in 21 states through 90 branches and four offices including head office in Kolkata, India. It also caters to 77 satellite locations where its employees service customers directly using technology without a physical branch office. In addition, as of March 31, 2019, it had 88 stockyards for equipment maintenance helping it to preserve the repossessed equipment quality for potential redeployment or resale.

Debt Offer Details:

For the purpose of onward lending and repayment of interest and principal of existing loans (75% of fund mobilized) as well as general corpus fund need (25% of fund mobilized), SEFL is coming out with debt offer of Secured Redeemable Non-Convertible Debentures of Rs. 1000 each for Rs. 100 crore with a green shoe option to retain oversubscription to the tune of Rs. 400 crore making the total issue size of Rs. 500 crore. SEFL has a shelf limit of Rs. 1400 cr. for the issue consisting of Rs. 600 cr. unsecured and Rs. 800 cr. secured NCDs. Issue opens for subscription on 19.08.19 and will close on or before 18.09.19. 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. This is the 6th debt offer from the company since April 2015.

This issue is rated as BWR AA/Negative by Brickwork Ratings and ACUITE AA/Negative by ACUITE Ratings. This rating indicates that instruments with such ratings are consider to have high degree of safety regarding timely servicing of financial obligations and carry very low credit risk. Issue is jointly lead managed by Karvy Investor Services Ltd. and SMC Capitals Ltd., while Karvy Fintech Pvt. Ltd. is the registrar to the issue. Axis Trustee Services Ltd. is the debenture trustee. Thus this issue is with different set of merchant bankers compared to its 5th offer. Company is likely to spend Rs. 14.5 cr. to mobilize Rs. 500 cr.

Options/Series

I

II

III

IV

V

VI

VII

VIII

IX

X

Frequency of Interest Payment

NA

Quarterly

Annual

NA

Monthly

Annual

NA

Monthly

NA

NA

Minimum Application

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

In multiples of thereafter

₹1,000 (1 NCD)

₹1,000 (1 NCD)

₹1,000 (1 NCD)

₹1,000 (1 NCD)

₹1,000 (1 NCD)

₹1,000 (1 NCD)

₹1,000 (1 NCD)

₹1,000 (1 NCD)

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

Face Value of Secured NCDs (₹/ NCD)

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹10,000 (10 NCDs)

₹10,000 (10 NCDs)

Issue Price (₹ / NCD)

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

₹1,000

Tenor from Deemed Date of Allotment

1 year 1 month

1 year 1 month

1 year 1 month

2 years

2 years

3 years

3 years

5 years

5 years

5 years

Coupon Rate (% per annum) for category I, II and III investors

NA

9.88%

10.25%

NA

9.95%

10.40%

NA

10.15%

10.65%

NA

Effective Yield (Per annum) for category I, II and III investors

10.01%

10.24%

10.37%

10.26%

10.41%

10.48%

10.40%

10.62%

10.69%

10.60%

Mode of Interest Payment

Through various options available

Redemption Amount (₹/ NCD****

₹1,109

₹1,000

₹1,000

₹1,216

₹1,000

₹1,000

₹1,346

₹1,000

₹1,000

₹1,660

Maturity Date (From Deemed Date of Allotment)

1 year 1 month

1 year 1 month

1 year 1 month

2 years

2 years

3 years

3 years

5 years

5 years

5 years

Nature of indebtedness

Secured

*** Our Company shall allocate and allot Series VI NCDs wherein the Applicants have not indicated their choice of the relevant NCD Series.

These NCDs have tenures of 1 yr 1 month, 2 yrs, 3 yrs and 5 yrs, it offers coupon rates ranging from 9.88% to 10.65% based on selection of investors. Frequency of interest payments will be Monthly, Quarterly, Annually or cumulative on maturity as per the choice of investors. Additional incentive of 0.25% is being offered to existing bondholders of the group companies, stakeholders of SREI Infra, employees and Senior Citizens under series III, IV, VI, VII and IX. Allotment of these NCDs will be in dematerialized mode only. Application is to be made through ASBA mode only.

Financial Data:

SEFL has posted total revenue and net profits of Rs.4366.84 cr. / Rs. 306.38 cr. (FY19 - audited) and for Q1 of FY20 (unaudited) it has earned net profit of Rs. 40.26 cr. on total revenue of Rs. 1066.38. If we annualize latest results, its bottom line is showing decline. Post issue its current debt equity ratio of 7.31 will stand enhanced to 7.80. Its net NPAs have grown from 1.8% for FY17 to 4.8% for FY19.


Conclusion / Investment Strategy

Sectors financed by SEFL are having slowdown in activities as expressed in their recent performances. Q1 bottom line of SEFL indicates pressure on margins. NPAs are showing rising trends. All these raise concerns. With this, there are six other debt offers are already taping the market providing many options for investors. Hence Investors may consider moderate investment for long term. (Subscribe for long term).

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Aug 17, 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 SREI Equipment NCD Aug 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 SREI Equipment NCD Aug 2019 worth investing. The SREI Equipment NCD Aug 2019 Note sets the NCD expectations in systematic way which tells you if SREI Equipment NCD Aug 2019 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in SREI Equipment NCD Aug 2019 by providing NCD recommendations i.e. subscribe, avoid and neutral.


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