NCD Issues: Manappuram Finance - Buy; Muthoot Finance - Avoid
Suparna / 17 Aug 2011
Manappuram Finance and Muthoot Finance, two major players in loan against gold, are tapping the market with NCD issues, to raise a total of Rs 1750 crore. Investors can choose from the options available in both the issues.
Issue Information/Company Details
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Manappuram Finance
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Muthoot Finance
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Options
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I
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II
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I
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II
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III
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Tenure
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400 Days
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24 months
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24 months
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36 months
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60 months
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Frequency of Interest Payment
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NA
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Semi -annually
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Annually
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Annually
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Annually
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Minimum Application (Rs)
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Rs 5000 (5 Bonds of FV Rs 1000)
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Rs 5000 (5 Bonds of FV Rs 1000)
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Coupon (%)
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NA
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12.20*
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12.00**
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12.25***
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12.25***
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Redemption Amount (Rs /NCD)
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1132.25
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NA
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NA
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NA
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NA
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Issue Opens On
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August 18, 2011
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August 23, 2011
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Issue Closes On
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September 5, 2011
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September 5, 2011
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Issue Size
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750 crores
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1000 crores
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Objective of the Issue
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To fund its financing activities and also for its various business operations, which include capital expenditure and working capital requirement.
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To fund its financing activities and also for its various business operations, which include capital expenditure and working capital requirement.
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NCD will be Listed on
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BSE
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BSE,NSE
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Ratings
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“AA-“by CARE and Brickwork
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“AA-/stable” by CRISIL and ICRA
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Other Information
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Net NPAs
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0.11%
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0.33%
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Capital Adequacy Ratio
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29.13%
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15.82%
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Debt Equity (Pre/Post)
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2.94/3.32
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2.00/2.75
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**11.75 per cent p.a. and ***12 per cent p.a. for Institutional Portion
It seems that major NBFCs are finding the right way of raising money in this volatile stock market – viz., issuing Non Convertible Debentures (NCDs).
Following two successful NCD issues from India Infoline Investment Service Ltd (IIISL) and Shriram City Union, two major players in loan against gold, the heavyweights Manappuram Finance and Muthoot Finance, are tapping the market to raise a total of Rs 1750 crore. Gold loans form the major portion of total loans for both the companies.
Manappuram Finance is offering two options – one with 400 days and other with 24 months. In the 400 days’ option, one would get Rs 1132.25 at maturity for every Rs 1000 NCD. In the second option, the coupon rate would be 12.20 per cent per annum, payable semi-annually.
Muthoot Finance offers three options, with tenures ranging from two years to five years, and interest rates between 12 to 12.25 per cent per annum.
The loan books of both companies are majorly exposed to gold. This is very good in the current scenario, as prices are continuously moving northward, though the companies could face problems if gold prices correct substantially. Such a situation can increase their non-performing assets.
Keeping this in mind, we would suggest that investors go for the NCD with a shorter time horizon. According to us, the Manappuram Finance 400 days’ option is favourable. The post-tax gain would be better due to the 10 per cent long-term capital gains applicable on listed NCDs against interest income, which you would attract based on the income level, which could go up to 30 per cent.
However, do not go in for a very big exposure in these bonds, as we expect a few more NBFCs to tap the market, which would give you options to diversify your risk.
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