Shriram City Union Finance Limited (SCUF) is a part of the Shriram Group of Companies which has a strong presence in the Indian financial market. SCUF was founded in 1986 and has 25 years' of track record. It is a deposit-taking Non Banking Finance Corporation (NBFC) registered with RBI. As on 31st of March 2011; the company, through its 559 branches, has a presence in 17 states of India with a strong foot print in south India. Employee strength of SCUF is 2318 as on March 31st 2011.
The business model
SCUF follows the 'hub and spoke model' where the responsibilities right from the loan origination to recoveries are given to each of the business outlet. Using technological platform, management closely monitors activities from the loan origination to the final recovery. The company has grown its AUM consistently over the years and since 2007 it has demonstrated an ecstatic performance. Its AUM since then has grown at a compounded annual growth rate (CAGR) of 34% and profitability at whopping 47% CAGR. As on 31st of March 2011, AUM of SCUF is approximately 7998 crore and net profit after tax is approximately 240 crore.
Company has the presence in all major categories of retail finance ranging from auto loans to gold loans. In addition to that, it has a sizable exposure to Medium and Small Enterprises (MSMEs). It makes it one of the dominant players in the NBFC business. It has planned its foray in Housing Loans category which will further strengthen its position in the industry.
(Source: Issue prospectus, Figures are as on March 31st 2011)
Thus, in order to augment the lending and investment needs of the company, SCUF is currently offering secured Non Convertible Redeemable Debentures (NCD) of face value of 1,000 each at par aggregating to 375 crore along with an green shoe option to retain oversubscription upto 375 crore.
The details of the offering (NCD) are as follows:
|Issuer||Shriram City Union Finance Limited|
|Offering||Public Issue of NCDs aggregating upto 375 crore with an option to retain over-subscription upto 375 crore for issuance of additional NCDs aggregating to a total of upto 750 crore.|
|Rating||'CARE AA' by CARE & 'AA- /Stable' by CRISIL|
|Security||Pari Passu with other secured creditors and priority over unsecured creditors|
|Face Value||1,000 per NCD|
|Issue Price||At par ( 1,000 per NCD)|
|Minimum Subscription||10 NCDs and in multiples of 1 NCD thereafter|
|Coupon rate|| |
|Reserved Individual (RI)||Individuals applying for NCDs aggregating to a value not more than 5 lacs|
|Unreserved Individual (UI)||Individuals applying for NCDs aggregating to a value more than 5 lacs|
|Interest Payment||First day of April every year|
|Trustee||IDBI Trusteeship Services Limited|
|Listing||BSE & NSE|
|Depository||National Securities Depository Limited and Central Depository Services Limited|
|Registrars||Integrated Enterprises (India) Limited|
|Issuance||Demat form only|
|Issue Open Date||August 11, 2011|
|Issue Close Date||August 27, 2011|
|Deemed Date of Allotment||Deemed date of allotment shall be the date of issue of the Allotment Advice / regret.|
|Eligible Investors||Category I||Category II||Category III|
| || || |
Note: PAN card is mandatory for subscribing to these bonds. A self attested copy shall be enclosed along with the application form.
Investors' will also have the following options available at the time of subscribing to the issue:
|Option I||Option II|
|Minimum Application / Face Value||10,000||10,000||10,000||10,000|
|In Multiples of||1,000||1,000||1,000||1,000|
|Tenor||60 months||60 months||36 months||36 months|
|Put and call option||48 months from the deemed |
date of allotment
|48 months from the deemed |
date of allotment
|Coupon Payment Date||April 1 every year||April 1 every year||April 1 every year||April 1 every year|
|Coupon Payment Date||12.10% per annum||11.85% per annum||11.85% per annum||11.60% per annum|
|Yield on Redemption||12.10%||11.85%||11.85%||11.60%|
|Tax slabs (%)||10.30||20.60||30.90||10.30||20.60||30.90||10.30||20.60||30.90||10.30||20.60||30.90|
|Effective Yield –Pre Tax (%) *||12.09||12.09||12.09||11.84||11.84||11.84||11.84||11.84||11.84||11.59||11.59||11.59|
|Post Tax Returns (%) *||10.84||9.60||8.35||10.62||9.40||8.18||10.62||9.40||8.18||10.39||9.20||8.01|
|* Put & Call option has not been considered while calculating yield pre-tax as well as post-tax|
(Source: Shriram City Union Finance Ltd. & PersonalFN Research)
Well, after reading the details of the NCD (as provided above), there may be still some more questions popping up, which are answered hereunder:
- Will I get any tax benefit if I invest in these bonds?
No, these bonds do not entitle you to any tax benefit nor are these any “infrastructure bonds”, which make you eligible for an additional tax deduction under section 80 CCF.
- What is the Tax Treatment of interest on these Bonds? Are these Bonds Tax Free?
No, the interests on these bonds are not tax free – they are chargeable to tax. The interest income will be taxed under “income from other sources”, and will be brought to tax at the respective income tax rates you fall under. The Tax Deduction at Source (TDS) will not take place as these bonds are issued a demat form and are listed on the exchange.
- Can a minor apply to these bonds?
Yes, a minor can apply for these bonds, but only through a guardian.
- Can one apply in joint names?
Yes, one may apply in a joint name. However, the demat accounts will also be required to be held in joint name and the order of applicant shall be the same as appearing in the demat account. Moreover, all payments will be made out in favour of the first applicant as well as all communications will be addressed to the first named applicant whose name appears in the application form and at the address mentioned therein.
- Who will get the interest in case of joint application?
In case of joint application, interest will be accounted to the first holder only.
- My demat account is in joint name, but I want to apply is a single name?
In case of a single application, demat account of the same single applicant would be necessary. Joint demat account would not do.
- If I'm an NRI can I invest in these bonds?
No, NRIs are not eligible to invest in these bonds.
- Is there a lock-in period while investing?
No. There is no lock-in period for these bonds.
- In whose favour the cheque is to be made?
Cheques have to be made in the favour of “ESCROW ACCOUNT SCUF NCD PUBLIC ISSUE” and crossed “A/C PAYEE ONLY”.
In our opinion, rates offered by SCUF are very attractive. The company has demonstrated operational efficiencies in the past. It follows a business model which helps mitigate the risk involved in the retail finance business. Capital Adequacy Ratio, which measures the risk weighted credit exposure of the company, is at healthy 20% against the 15% prescribed by RBI. Company has showed drastic improvement on the asset quality front with net non performing assets (NPAs) as a percentage of total loan assets falling down from 1.47% in 2007 to 0.43% in March 2011. However, in a rising interest rate scenario profitability of NBFCs usually declines as additional cost of borrowing can not always be passed on to the borrowers. Despite the sound risk management mechanism, retail finance remains a high risk business and any unusual rise in NPA level cannot be ruled out. Both CRISIL and CARE have accorded a stable rating to the issue.
After considering all pros and cons, we believe the issue looks attractive for the retail investors as interest rates provided by the NCDs are luring. Hence, one can go ahead and subscribe for this issue. An investor may select any option depending upon his or her investment horizon.