Company Overview

Religare Finvest Limited (RFL) is a non-deposit taking Non-Banking Finance Corporation (NBFC) incorporated in April 2006. It is a wholly owned subsidiary of Religare Enterprises Limited headquartered at New Delhi.

As on June 30th 2011, the company has a presence in 15 states and 1 union territory and has a distribution network of 39 branches. In past 5 years company has registered robust growth in its income. From meagre Rs 97.3 crore in 2007, the total income has gone up to Rs 1,163.1 crore; net profit after tax has zoomed from Rs 18.9 crore to Rs 114.7 crore during the same time period

Business analysis

RFL is more focused on SME finance and retail capital market finance. Two sectors together constitute roughly 85% of the total loan book of the company.

 

(Loan book as on June 30-2011)

 

Total assets under management of the loan portfolio have grown from Rs 1,711.43 crore in March 2009 to Rs 8,966.9 crore in March 2011. Growth of SME sector is crucial for the overall economic growth. Despite of growing importance of the sector, SMEs often find it difficult to raise money at the right time to fund their business activities and satisfy working capital requirements. RFL predominately lends against the hypothecated and mortgaged assets of SMEs which reduces the risk of default considerably. This is evident from the lower Non Performing Assets (NPAs). The net NPA ratio was just 0.02% as on March 31, 2011. Company is adequately capitalised which is reflected through its capital adequacy ratio of 16.16% (against the 15% prescribed by RBI) as on March 31st 2011.

Thus, in order to meet the funding demands of its rapidly expanding core business, RFL is currently offering Secured Non-Convertible Redeemable Debentures (NCD) of face value of Rs 1,000 each at par aggregating to Rs 400 crore along with a green shoe option to retain oversubscription up to Rs 400 crore.

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

 

Issuer	Religare Finvest Limited
Offering	Public Issue of NCDs aggregating to Rs 400 crore with an option to retain over-subscription up to Rs 400 crore for issuance of additional NCDs aggregating to a total of up to Rs 800 crore.
Rating	‘CARE AA-' by CARE & ‘ ICRA AA- (Stable)’ by ICRA
Security/ Security cover	Pari Passu with other secured creditors and priority over unsecured creditors; 1.10 times
Face Value	Rs 1,000 per NCD
Issue Price	At par (Rs 1,000 per NCD)
Minimum Subscription	10 NCDs and in multiples of 1 thereafter
Tenure	Option I: 60 months Option I: 36 months
Coupon rate	Option I: Coupon rate of 12.10% p.a. for category I investors, 12.25% p.a. for category II investors and 12.50% for category III investors. Option II: Coupon rate of 12.00% p.a. for category I investors, 12.15% p.a. for category II investors and 12.25% for category III investors.
Reserved Individual (RI)	Individuals applying for NCDs aggregating to a value not more than Rs 5 lacs
Unreserved Individual (UI)	Individuals applying for NCDs aggregating to a value more than Rs 5 lacs
Interest Payment	Annual, paid on 1st April every year
Trustee	IL & FS Trust Company Limited
Listing	BSE
Depository	National Securities Depository Limited and Central Depository Services Limited
Registrars	Link Intime India Private Limited
Issuance	Demat form only
Issue Open Date	September 09, 2011
Issue Close Date	September 26, 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
	Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and Regional Rural Banks, which are authorised to invest in the NCDs Provident Funds, Pension Funds, Superannuation Funds and Gratuity Fund, which are authorised to invest in the NCDs Venture Capital funds registered with SEBI Insurance Companies registered with the IRDA National Investment Fund Mutual Funds	Companies; bodies corporate and societies registered under the applicable laws in India and authorised to invest in the NCDs Public/private charitable/religious trusts which are authorised to invest in the NCDs Scientific and/or industrial research organisations, which are authorised to invest in the NCDs Partnership firms in the name of the partners Limited liability partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008	Resident Indian individuals Hindu Undivided Families through the Karta

Note: PAN card is mandatory for subscribing to these NCDs. 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 amount in Rs.	1,000			1,000
Thereafter in Multiples of	Rs 1,000			Rs 1,000
Tenor	60 months			36 months
Interest Payment	Annually			Annually
Coupon	12.50% per annum			12.25% per annum
Tax slabs (%)	10.30	20.60	30.90	10.3	20.6	30.9
Effective Yield -Pre Tax (%) *	12.49	12.49	12.49	12.24	12.24	12.24
Post Tax Returns (%) *	11.20	9.91	8.63	10.98	9.72	8.46

(Source: Draft 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 NCDs?
  
  No, these NCDs do not entitle you to any tax benefit nor are these any "infrastructure NCDs", which make you eligible for an additional tax deduction under section 80 CCF.
   
• What is the Tax Treatment of interest on these NCDs? Are these NCDs Tax Free?
  
  No, the interests on these NCDs 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.
  No tax will be deducted at source as these NCDs are issued a demat form and are listed on the exchange.
   
• Can a minor apply to these NCDs?
  
  Yes, a minor can apply for these NCDs, 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 NCDs?
  
  Yes, NRIs are eligible to invest in these NCDs but on non-repatriation basis only.
   
• Is there a lock-in period while investing?
  
  No, there is no lock-in period while investing.
   
• In whose favour the cheque is to be made?
  
  Cheques/Drafts have to be made in the favour of "Escrow Account- RFL NCD Public Issue-R" by Residents and crossed "A/C PAYEE ONLY".
  
  Cheques/Drafts have to be made in the favour of "Escrow account RFL NCD Public Issue-NR" by Non Residents and crossed "A/C PAYEE ONLY".
   

OUR VIEW:

In our opinion the yields on investment offered by RFL are attractive. The credit rating too, allotted to the issue is stable (‘CARE AA’- by CARE and ‘ICRA AA- (Stable) by ICRA). Minimum ticket size has purposefully been kept low at Rs 10,000 to encourage the retail participation. Moreover, issue worth Rs 200 crore has been kept reserved exclusively for individual retail investors with a green shoe option to keep back the over subscription worth Rs 200 crore. This will broaden the investor base.

Experienced management, rapidly growing SME loan business, decent Capital adequacy ratio, and lower net NPA ratio indicates adequate safety for the investors of this issue. However "Secured" nature of the debentures gives the investors a right on parity with the other lenders to have a claim on the assets of the company at liquidation of business and it does not automatically protect the principal amount.

We believe that company has been relatively new to the SME loan business. RFL has the total borrower base of 27,047 and operates through mere 39 branches. Besides, it has presence only in 15 states and a union territory which, in our opinion, is a risk. On the other hand retail capital market finance, which is the second biggest contributor to the top-line of the company, is vulnerable to capital market volatility. Any unexpected decline in stock markets may reduce the value of collateral thus reducing the quality of assets.

Considering all odds, we recommend investors to wait for better opportunities. However, investors with high risk appetite may invest in option II. Furthermore, subscribe for the issue only after running a check on your 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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qxbobo@gmail.com Sep 28, 2011 The purchases I make are entirely based on these articles.
europe@coordinationsud.org Sep 29, 2011 If you wrote an atirlce about life we'd all reach enlightenment.

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