Shriram Transport Finance NCD: Attractive yields of upto 11.60%. Apply

Shriram Transport Finance Company Limited (STFC) is tapping the capital markets with a bond issue of secured Non-convertible debentures aggregating to Rs 500 crs. The company has an option to retain over-subscription upto 500crs, effectively making this an issue of Rs 1000 crs. The face value is Rs 1000, with a minimum subscription amount of Rs 10,000. The issue opens on Monday the 27th of June and closes on Saturday the 9th of July. In case of oversubscription, the allotment would be on the basis of first come first served.

Face Value of Bond Rs 1000 each
Issue Size Rs 1000 crs
Period of Bond 2 options of 3 years and 5 years
Coupon Rate Category I and Category II 11% per annum and 11.10% per annum 
Coupon Rate for Unreserved Individual 11.10% per annum and 11.35% per annum
Coupon Rate for Reserved Individual Portion 11.35% per annum and 11.60% per annum
Category I or Institutional Portion QIB’s 
Category II or Non-Institutional Portion Bodies Corporates and Firms
Category III Unreserved Portion Resident Indian Individuals and HUF’s – application to be above 5 lakhs
Category III Reserved Portion Resident Indian Individuals and HUF’s – application to be upto 5 lakhs
Reservation Category I 10% of issue or upto 100 crs
Reservation Category II 10% of issue or upto 100 crs
Reservation Category III 40% of issue for unreserved category or individuals applying above 5 lacs
Reservation Category III 40% of issue for unreserved category or individuals applying upto 5 lacs
Lead Managers to the Issue JM Financial Consultants Private Limited
ICICI Securities Limited
Co-Lead Managers to the Issue R R Investors Capital Services (P) Limited
Karvy Investor Services Limited
Isssue Opening Date Monday 27th June 
Isssue  closing date  Saturday 9th July
Credit Rating CRISIL AA/Stable and CARE AA+
Paid -up Capital  22,61,84,068 Equity Shares 
Market Cap as on 24th June 2011 Rs 13,581.22 crs
Bid Lot 10 bonds
Bidding Amount for Retail 500 bonds of Rs 1000 each or 5 lakhs
Listing of Bonds National Stock Exchange
Interest on Application 2.5% per annum on application 
Interest on Allotment 7% per annum on allotment 
Allotment On first come first served basis

STFC as the name suggests is in the business of financing pre-owned commercial vehicles. STFC is the largest Indian asset financing company. The company provides financing for commercial vehicles and its primary borrowers are FTUs (first time users) and SRTOs (small road transport operators). It finances commercial vehicles, passenger commercial vehicles, multi-utility vehicles, three wheelers and also working capital requirements for FTUs and SRTOs. Recently the company has extended its services by providing loans for the purchase of equipment used in the infrastructure industry, and also for tractors.
The company was established in 1979 and has been in business now for over 32 years. The company is registered as a deposit taking NBFC with RBI since September 2000. The company has assets under management of over Rs 36,000 crs and the same have grown from Rs 29,000 crs in the previous year. In terms of size of the bond issue of Rs 1000 crs, this would amount to a requirement of a mere 15 days or less.

Objects of the debenture issue
The funds raised through this issue after meeting the expenditures of and related to the issue, will be used for our various financing activities including lending and investments, subject to applicable statutory and/or regulatory requirements, to repay our existing loans and our business operations including for our capital expenditure and working capital requirements.

Tenure and coupon rate
The company has divided the applicants into four broad categories. They are as follows: –

  1. Category I.   Comprising of QIB’s
  2. Category II.  Comprising of corporates and other bodies not eligible as QIB’s.
  3. Category III  Comprising of HNI’s or retail applicants who subscribe for over 5 lacs
  4. Category III – Reserved. Retail applicants who apply upto five lacs.

There is a reservation for each category with 10% each being reserved for Category I and Category II. The remaining of the issue is reserved for individuals with 40% reserved for individuals applying for 5 lacs and more and 40% reserved for individuals applying for upto  Rs 5 lacs.
There are two durations for each of the categories namely 3 years and 5 years. The payment of interest is annual. The coupon rate is 11% for 3 years and 11.10% for 5 years in Category I and Category II. In Category III, the HNI’s or applicants above Rs 5 lacs would get 11.10% for 3 years and 11.35% above 5 years. The retail category which is upto Rs 5 lacs would get 11.35% for 3 years and 11.6% for 5 years. 
The company would also pay interest on the application money at the rate of 2.5% if allotment is not made and at the rate of 7% if allotment is made.

Though this is a bond issue and the company has very good ratings from credit agencies like CRISIL AA/Stable and CARE AA+ it still makes sense to talk about the financials. The total income has grown from Rs 4,496 crs in the financial year ended March 2010 to Rs 5,511.98 crs in the year ended March 2011. The net profit after tax has grown from Rs 873.1 crs to Rs 1,217.12 crs respectively.

Rupees in crores year 2010 year 2011
Income from operations 4399.06 5312.34
Other Income 96.88 199.64
Total Income 4495.94 5511.98
Interest Expense 2246.81 2274.32
Other Expenditure 924.56 1400.12
Total Expenditure 3171.37 3674.44
Profit Before Tax 1324.57 1837.54
Tax payments 451.47 620.42
Net Profit After Tax 873.1 1217.12

SBI had come out with a bond issue where the coupon rate was 9.95% for retail investors and now STFC is offering secured debentures with a five year maturity at 11.6% coupon rate. These debentures would be listed on the NSE and there have been some concerns about liquidity of trading on the bond exchange. As far as a retail investor is concerned there would be no concern as these bonds would have some trading and there would be ample demand at a price which is yield effective at the current rate of interest.
I believe investors should apply for these secured debentures as they are attractively priced from a yield perspective and offer decent returns to investors. People applying in the retail category must apply on day one as there is a risk if the issue gets oversubscribed of non-allotment.

SEBI disclaimer: – I intend to subscribe to the above issue.

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