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 a track record of nearly 3 decades. It is a deposit-taking Non Banking Finance Corporation (NBFC) registered with RBI. As on September 30, 2013; the company had 1,021 business outlets with a strong foot print in south India. Employee strength of SCUF is 13,930 as on September 30, 2013.

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 Assets under Management (AUM) of the company has grown consistently over the years. From Rs 3,369 crores in FY 2008, the AUM of SCUF expanded to RS 15,828 crores in FY 2013. As on September 30, 2013, the AUM of SCUF stood at Rs 15,117.98 crores and profit after tax stood at Rs 244.61 crores.

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). This makes it one of the dominant players in the NBFC business.
 

(Source: Issue prospectus, Figures are as on September 30, 2013)  

Thus, in order to augment the lending and investment needs of the company, to repay existing liabilities or loans and towards business operations including for capital expenditure and working capital requirement, SCUF is currently offering secured Non-Convertible Redeemable Debentures (NCD) of face value of Rs 1,000 each at par aggregating upto Rs 100 crore along with with an option to retain over-subscription upto Rs.100 Cr (Total Rs 200 crore).
 

The details of the offering (NCD) are as follows:

Issuer	Shriram City Union Finance Limited
Offering	Public Issue of Secured Redeemable NCDs aggregating upto Rs.100 Cr with an option to retain over-subscription upto Rs.100 Cr (Total 200 Cr)
Rating	"CARE AA" by CARE
Security/ Security cover	The principal amount of the NCDs to be issued in terms of this Prospectus together with all interest due on the NCDs, as well as all costs, charges, all fees, remuneration of the Debenture Trustee and expenses payable in respect thereof by way of a first and exclusive charge on specified future receivables of our Company in favour of the Debenture Trustee and a pari passu charge on identified immovable property of our Company, as may be decided mutually by our Company and the Debenture Trustee.
Face Value	Rs 1,000 per bond
Issue Price	At par (Rs 1,000 per bond)
Minimum Subscription	10 Bonds and in multiples of 1 Bond thereafter
Trustee	GDA Trusteeship Limited
Listing	BSE
Depository	National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL)
Registrars	Shriram Insight Share Brokers Limited
Issuance	Bonds will be issued in both dematerialised and physical form, at the option of the applicant. Trading in the bonds will however take place compulsorily in dematerialised form only
Issue Open Date	April 16, 2014
Issue Close Date	May 16, 2014
Deemed Date of Allotment	The date of issue of the Allotment Advice, or such date as may be determined by the Board or a duly constituted committee thereof, and notified to the BSE. All benefits relating to the NCDs including interest on the NCDs shall be available to the investors from the Deemed Date of Allotment. The actual Allotment of NCDs may take place on a date other than the Deemed Date of Allotment
Quota	Category II - Upto 40% of Overall Issue Size* and Category III - Upto 40% of Overall Issue Size*
Category II (High Networth Individual Category)	Resident Indian individuals and Hindu Undivided Families applying through the Karta, for NCDs aggregating to a value of more than Rs 500,000 across all series of NCDs.
Category III (RetailIndividual Category)	Resident Indian individuals and Hindu Undivided Families applying through the Karta, for NCDs aggregating to a value not more than Rs 500,000 across all series of NCDs.

Note: PAN card is mandatory for subscribing to these bonds. A self attested copy shall be enclosed along with the application form.) (*on first come first serve basis to be determined on the basis of the bid uploads made with the scheduled Stock Exchanges) (Source: Issue Prospectus, PersonalFN Research)   Investors' will also have the following options available at the time of subscribing to the issue:

Series	I			II			III			IV			V			VI
Minimum Application	Rs 10,000			Rs 10,000			Rs 10,000			Rs 10,000			Rs 10,000			Rs 10,000
Face Value	Rs 1,000			Rs 1,000			Rs 1,000			Rs 1,000			Rs 1,000			Rs 1,000
In Multiples of	Rs 1,000			Rs 1,000			Rs 1,000			Rs 1,000			Rs 1,000			Rs 1,000
Tenor	24 months			36 months			60 months			24 months			36 months			60 months
Interest Payment	Annual			Annual			Annual			N.A. (Since Cumulative)			N.A. (Since Cumulative)			N.A. (Since Cumulative)
Coupon	11.00% per annum			11.50% per annum			11.75% per annum			N.A.			N.A.			N.A.
Amount on Maturity	-			-			-			Rs 1232.10			Rs 1386.20			Rs 1742.76
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	10.30	20.60	30.90	10.30	20.60	30.90
Effective Yield -Pre Tax (%)	11.00	11.00	11.00	11.50	11.50	11.50	11.75	11.75	11.75	10.98	10.98	10.98	11.49	11.49	11.49	11.74	11.74	11.74
Post Tax Returns (%)	9.87	8.74	7.60	10.32	9.13	7.95	10.54	9.33	8.12	9.90	8.81	7.71	10.41	9.32	8.20	10.74	9.71	8.63

(Source: Prospectus registered with SEBI. & 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.
  
   
• Is interest on these bonds Tax Free?
  
  No, the interest on these bonds is not tax free - it is 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. However no tax will be deducted at source as these bonds are issued in demat form and are listed on the exchange.
  
   
• What is the Tax Treatment on Capital Gains for these bonds?
  
  If you happen to sell these bonds before 365 days, you will have to pay short term capital gain tax (@ applicable to you as per your tax slab) arising on the profit. Provisions of long term capital gain tax will be applicable for any sale of securities after 365 days. Any long term capital gain on these securities will be taxable @ 10% without indexation benefits or 20% with indexation benefits.
  
   
• Can a minor apply to these bonds?
  
  Yes, a minor can apply for these bonds, but only and 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 terms of providing liquidity, these NCDs are proposed to be listed on the Bombay Stock Exchange.
  
   
• In whose favour the cheque is to be made?
  
  Cheques have to be made in the favour of “SCUF NCD 10 (2014) – Escrow Account” and crossed “A/C PAYEE ONLY”.
  
   

OUR VIEW:

PersonalFN is of the view that the rates offered by SCUF are 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 a healthy 18.6% as against the 15% prescribed by RBI as on March 31, 2013. 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. In order to protect investors' interest, the company would have to maintain its capital adequacy levels and continue to diversify its asset base geographically. The credit rating allotted to this issue is stable i.e. ‘CARE AA' by Care.

An incentive in the form of higher rates is being offered to retail and HNI investors as compared to institutional and non institutional investors. Moreover the chances of getting allotment is also higher for HNI and retail investors as both these categories have 80% of the overall issue size reserved for them.

Thus taking into consideration a holistic view, we believe that investors who wish to invest in these NCDs can opt for a relatively shorter tenure of 24 months or 36 months rather than investing for tenure of 60 months, depending upon their investment holding capacity.


In case you wish to invest in the above instrument, you can email us at info@personalfn.com or contact us on 022-6136 1200

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