Business
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.

Financials
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.

Conclusion
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.

The company is offering five different option plans with varying terms of maturity ranging from 36 months to 60 months. The rate of interest varies from 10.75% to 11.5%. STFC is a company in the financing of used or pre-owned vehicles. It also finances new vehicles provided the vehicle owner is an existing customer of the company. STFC has as of date over six lac customers and has as part of its assets under management over nine lac vehicles.

The company’s issue of NCD’s have been rated ‘CARE AA+’ by CARE and rated ‘AA (ind)’ by Fitch. STFC has been borrowing through fixed deposits for a very long time. This instrument now offers security to the traditional fixed deposit and has attractive interest rates and various time options. It may also be noted that there is no deduction of TDS (tax deducted at source) for resident debenture holders. Coming to the financials of STFC which is a registered NBFC with RBI and has a track record of over 30 years, they are impressive on all counts. The company recorded a total income of Rs 3731.13 crs and a net profit of Rs 612.40 crs for the year ended March 2009. The AUM or (assets under management) were at an impressive Rs 23281.11 crs as on 31st March 2009. The NIM (net interest margin) was at 6.99% while the Capital adequacy ratio at a healthy 16.35%. The net NPA’s (non performing assets) were at 0.83%.

If one were to look at the growth it is even more impressive. The AUM has grown at a CAGR (compounded annual growth rate) of 68% over the period 2005-2009. Over the same period Revenues have grown at a CAGR of 81.26% from Rs 345.69 crs to Rs 3731.13crs, while profit after tax has grown at a CAGR of 87.7% from Rs 49.32 crs to Rs 612.40 crs. The company has introduced a new initiative in the form of truck Bazaars to provide a suitable platform for counseling and buying and selling of commercial vehicles on a single platform and thus create a vibrant ‘used vehicle market’ . The other initiative from the Company is embarking on tapping local markets through developing partnerships with private financiers, who dominate the unorganized regional pre-owned commercial vehicle financing market.

The issue is open for three weeks and we normally see that people invest only at the last moment. The issue being a fixed income instrument has an added sweetener where interest would be given on application money provided allotment is made at the rate of 8% and at the rate of 2.5% if the application amount is refunded. Senior citizens would be entitled to an additional rate of interest of 0.25% in option one and two.

Very clearly STFC has come a long way and is poised to go further. Investors looking at fixed income with security should invest in this instrument. There is a choice of as many as five options to suit the individual needs.

• STFC is among the leading organized finance provider for the commercial vehicle
  industry with a focus to provide various credit facilities to Small Truck Operators.
• The Company was incorporated in the year 1979
• STFC is a part of the “Shriram” conglomerate which has a significant presence in
  financial services viz., commercial vehicle financing business, consumer finance, life
  and general insurance, stock broking, chit funds and distribution of financial products
• STFC has PAN India presence through wide network of 479 branches and tie up with
  500 private financiers across the country as on 31st March, 2009.
• STFC’s NCDs are rated ‘CARE AA+’ by CARE and ‘AA (ind)’ by Fitch.
• STFC has a strong financial track record and has total assets under management
  (AUM) in excess of INR 23,281 crores as on 31st March 2009.
• STFC’s Net NPA levels as on 31.03.2009 were 0.83%
• The net interest margins as on 31.03.2009 was 6.99%

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