14 July 2013

Technicals- TRF, Indian Bank, Ingersoll Rand, OnMobile, MCX, BGR Energy Systems :: Business Line


Pivotals: Reliance Industries, SBI, Tata Steel, Infosys :: Business Line


Shriram NCD -Lock into three-year option :: Business Line

Shriram Transport Finance has come out with the first public issue of non-convertible debentures (NCDs) for 2013-14, with attractive interest rates for individuals. The offer requires a minimum investment of Rs 10,000. In a scenario of declining interest rates, investments can be considered here as they offer relatively higher returns among fixed income options.
The company is offering both cumulative and non-cumulative option on its NCDs. Under the cumulative option, interest earned is compounded and paid on maturity, along with the principal. Investors have a choice of a three-year or a five-year tenure.

NON-CUMULATIVE OPTION

In the non-cumulative option, there are three choices. The first is with three-year maturity and annual interest payout. The second is with five-year maturity and annual interest payout. The third is with five-year maturity and monthly payout.
Investors not dependent on regular cash flows from interest payouts can choose the cumulative option as it will fetch higher returns due to compounding. The three-year option offers 10.9 per cent interest, whereas the five-year option offers 11.15 per cent interest.
We recommend investors to lock into the three-year cumulative option offering 10.9 per cent interest. The five-year NCD offers a marginally higher 11.15 per cent. But, with impending regulatory changes in the provisioning requirement for non-banking financial companies (NBFC), the company may see higher provisioning/ delinquencies. It is better to consider the shorter-term option right now.
At 10.9 per cent for three years, the post-tax return for investors in the 10 per cent, 20 per cent and 30 per cent tax bracket works out to 9.8 per cent, 8.7 per cent and 7.5 per cent, respectively.
These interest rates offered by Shriram Transport Finance are better than bank deposit rates as well as interest rates of non-banking financing companies with similar risk profile (CRISIL rating FAA or more).
Banks, on an average, currently offer 9 per cent interest on three-year deposits. The highest rate offered by banks for this timeframe is 9.25 per cent.
The offer is higher than NBFC fixed deposit rates for a similar tenure too. Dewan Housing currently offers 10 per cent interest on three year deposit. Mahindra Finance offers 10.25 per cent; Shriram Transport Finance on the other hand offers 10.75 per cent .
The issue has been rated “AA/stable” by CRISIL. This implies high degree of safety regarding timely servicing of financial obligations and carrying very low credit risk.
However, remember that NCDs are not insured like fixed deposits (insurance available upto Rs 1 lakh worth of deposits). The NCD of this company, however, is secured. This means that in case the company is liquidated, the NCD holders would be given a priority in repayment of money due to them as they are secured by a charge on any of the assets of the company. Besides, NCDs can be listed and traded in the stock exchange, although the liquidity may not be too high.
A downward movement in interest rates could lead to appreciation in the value of the NCD. When sold in the market, NCDs will attract short/long-term capital gains tax.

COMPANY DETAILS

Shriram Transport Finance is one of the largest asset financing company in India, strategically well-positioned in the pre-owned truck market. As of March 2013, the company has total assets under management of around 49,000 crore, with 80 per cent exposure in the pre-owned segment. The company has a market share of 25 per cent in this high yielding segment.
For 2012-13, the company’s net profit grew by 8 per cent to Rs 13,606 crore and its gross non performing assets (GNPAs) stood at 3.2 per cent of loans. The capital adequacy of the company for the same period was at 20.6 per cent, well above the mandated requirement of 15 per cent.
However, stringent asset classification norms by RBI may impact the provisioning cost for the company. Currently, the loans for which instalments are overdue for 180 days or more, are classified as NPAs. The Usha Thorat committee has proposed to bring it down to 90 days (by end of 2014-15) for NBFCs in a phased manner. If the recommendations are accepted, the company may see higher delinquencies and hence higher provisioning costs.

ISSUE DETAILS

The issue size is Rs 375 crore with an option to retain an additional Rs 375 crore. The issue opens on July 16 and closes on July 29, 2013.

Index Outlook: Rising against all odds :: Business Line


Religare Institutional Research| Infosys (INFO IN, BUY): Healthy Q1 raises probability of guidance beat; BUY

Healthy Q1 raises probability of guidance beat; BUY
INFO reported a strong Q1FY14 with US$ revenue growth of 2.7% QoQ
(RCMLe 1.7%) led by 4% volume growth. While margins were flat despite the
absence of wage hikes this quarter, the company performed well on most
operational metrics. Further, management maintained its guidance, and we
believe a healthy Q1 performance increases the probability of achieving/
beating the top end of the guidance. Overall, while we do not see any
significant upgrades to our EPS estimates, the pick-up in US$ growth could
help drive up valuations. INFO remains our top pick in the Indian IT space.