BackProduct crack: SREI Equipment Finance NCD
SREI Equipment's NCD issue has four tenors36, 39, 60 and 84 months
Premium
SREI Equipment Finance Ltd has launched a public issue of secured redeemable non-convertible debentures (NCDs) for a total amount of 500 crore. This includes the option to retain oversubscription.
While this is its first public issue, the parent company, SREI Infrastructure Finance Ltd, is not new to the market. SREI Equipment Finance primarily lends for infrastructure equipment and is a joint venture between SREI Infrastructure and BNP Paribas Lease Group.
SREI Equipment’s NCD issue has four tenors—36, 39, 60 and 84 months. There are monthly and annual coupon payouts, and a cumulative option (accumulated interest is paid out with capital at maturity). The coupon and yield (cumulative option) are 9.75-10.25% per annum. The bonds will be issued in physical and dematerialized formats and are proposed to be listed on the BSE and the NSE.
WHAT WORKS…
The monthly payout option gives investors a defined monthly income stream. Senior citizens and employees of SREI Equipment are eligible for an additional 0.25 basis points coupon, making the range 10-10.5% per annum for them. (One basis point is one-hundredth of a percentage point.) The monthly interest coupon of 9.75% means you can earn up to 812.50 per month (pre-tax) on an investment of 1 lakh, while a coupon of 10% means around 833.
The issue is rated CARE AA, and BWR AA (Stable) by Brickworks Ratings, indicating high financial stability and ability to fulfil financial obligations. The non-banking finance company’s financial health is reasonable with net profit growth at a compounded annual growth rate of 26.8% for the past four years and disbursements growing at about 11.3%. But net non-performing assets are elevated at 3.6%.
For those in the 10% tax bracket, the post-tax returns will be in the range of 8.75-9.20% per annum, making this an attractive issue.
WHAT DOESN’T…
The infrastructure equipment financing business is dependent on the overall growth of the economy and the government’s reforms in infrastructure sector. A slowdown can affect the company’s cash flow. Its cash balance is adequate at present, but there is no steady trend as the balance fluctuates year to year.
For investors, interest earned is taxable. For those in the highest tax bracket, post-tax returns will only be 6.73-7.08% a year (across options). You will be better off investing in a short-term income fund.
While the monthly payout option is good for those who need it, the interest earned is lower than the annual payout and cumulative options. To maximize yield through this option, you will have to reinvest the money each month in a similar bond.
You should invest in a corporate bond if you are comfortable with the company’s fundamentals. Invest in this issue if you are comfortable with the credentials of not just the NBFC but also its parent.
If you don’t need monthly income, opt for the three-year cumulative payout bond. Since, the interest coupons across tenors aren’t significantly different, its best to opt for the shortest tenor bond.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
