India Infoline Finance Issues NCD, Coupon 12.75%

Introduction India Infoline Finance (IIFL) NCD
India Infoline Finance (IIFL), a 98.87 per cent subsidiary of India Infoline (which is one of the leading players in the Indian financial services segment), is tapping the market to raise approximately Rs 500 crore by issuing non-convertible debentures (NCD) in the nature of subordinated debt. The company plans to raise NCDs worth Rs 250 crore with an option to retain over-subscription of Rs 250 crore. The funds raised through the issue will be used for financing activities such as investment and lending, repay existing loans and for working capital requirement, etc.

About India Infoline Finance - IIFL
IIFL is a systematically important non-deposit taking NBFC and is registered with the Reserve Bank of India (RBI). Broadly, the business of IIFL includes mortgage loans, capital market finance, gold loans and healthcare finance. As of March 31, 2012, around 85 per cent of the loan book was accounted for mortgage and gold loan while the capital market finance accounted for 12 per cent with the remaining from healthcare finance.

Over the past two years the financials of the India Infoline Finance (IIFL) have seen robust growth. On a consolidated basis, in FY2012 the revenue increased by 84 per cent to Rs 953 crore while the net profit grew by 14 per cent to Rs 105 crore on a YoY basis. The loan book of the company stood at Rs 6,746 crore as against Rs 3,289 crore in FY2011. The net interest margin (NIM) also showed an improvement of 28 basis points to 7.45 per cent. Meanwhile, the asset quality deteriorated slightly as the net NPA increased by 4 basis points to 0.40 per cent as on March 31, 2012.

India Infoline Finance (IIFL) NCD Issue Information

India Infoline Finance (IIFL) has given three options with an attractive yield of 12.75 per cent. The first option has monthly interest payments and hence its effective yield comes to 13.52 per cent. The second option has annual interest payments while the third option has cumulative payment and gives a sum of Rs 10,272.5 if a minimum amount of Rs 5,000 is invested at the end of six years. One should further note that the minimum application for the issues is of Rs 5,000 (five NCDs with face value of Rs 1,000). Thereafter the application can be made in multiples of Rs 1,000 or one NCD. The NCDs will be listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The issue opens on September 5 and closes on September 18. The following is the issue of India Infoline Finance (IIFL) NCD information table which shows the horizon and the rate of interest available under various options:

                       *Assuming minimum amount is invested.

The India Infoline Finance (IIFL) NCD issue would be allotted on a ‘first come first served’ basis and given the attractive coupon rate there might be a possibility that investors would rush in and hence one should not wait for the last day to be subscribe. Further, the debentures which were issued in the past by the company and listed on the exchange are trading above their face value of Rs 1,000. This is because the interest rate in the economy, which is expected to move southwards, will further help the debenture price to move higher. And hence, going ahead, there exists the probability that the price of the listed debenture and also of this India Infoline Finance (IIFL) NCD (post listing) might move northwards. However, one should note that the volumes on the exchanges are quite low and hence one should not invest merely to see some listing gains.

Of the three options, we at Dalal Street Investment Journal believe that one should go with the first option as it would provide regular liquidity and also handsome returns. One can diversify the risk going ahead as we believe there could be more such kind of issues. Therefore, invest with a limited exposure.