Company Overview

Religare Finvest Limited (RFL) a subsidiary of Religare Enterprises Limited (REL), is a Small and Medium Enterprise (SME) financing focused NBFC. Primarily, RFL provides capital to power the growth of the SME's.

As per economic survey 2011-2012, the SME sector accounts for 45% of goods manufactured and 40% of exports. As such, growth of this sector is pivotal for the economic and social development of the country. If the Indian economy is to move on to a higher growth trajectory, SMEs, who collectively contribute 17% of India's GDP, would have to grow and prosper. This thus brings out the importance of NBFCs providing credit to such SMEs. The diversified suite of lending solutions of RFL includes:
 

• SME Mortgage Loans
• SME Commercial Assets Loans
• SME Working Capital Loans
   

Apart from this, RFL also caters to retail capital markets financing business which includes Loan against marketable securities. As on June 30, 2012 RFL has a distribution network of 25 branches spread across the country.
 

(Source: Offer Document, PersonalFN Research)

 

RFL's loan portfolio as on March 31, 2012 revealed that the SME Financing formed 70.6% of the total loan book, while the second and third position was occupied by corporate lending and capital market financing which comprised 14.7% and 12.8% respectively.

At present in order to augment the lending and working capital needs of the company, Religare Finvest Limited is currently offering secured Non-Convertible Redeemable Debentures (NCD) of face value of Rs 1,000 each at par aggregating to Rs 250 crore along with a green shoe option to retain oversubscription up to Rs 250 crore, thereby taking the total issue size upto Rs 500 crore.
 

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

Issuer	Religare Finvest Limited
Offering	Public Issue of NCDs aggregating to Rs 250 crore with an option to retain over-subscription up to Rs 250 crore for issuance of additional NCDs aggregating to a total of upto Rs 500 crore.
Rating	'CRISIL AA-' by CRISIL & 'ICRA AA-' by ICRA
Security	Pari-Passu with other secured creditors of our Company having a first floating pari-passu charge on the Standard Business Receivables of our Company and a first pari-passu charge over the identified immovable property to be charged as security in connection with the NCDs and priority over unsecured creditors, to the extent of at least 1.1 times of the amounts outstanding in respect of the NCDs at any time
Face Value	Rs 1,000 per bond
Issue Price	At par (Rs 1,000 per bond)
Minimum Subscription	10 NCDs and in multiples of 1 Bond thereafter
Tenure	Series I: 36 months & 1 day Series II: 36 months & 1 day Series III: 60 months Series IV: 60 months Series V: 70 months (for Reserved Individuals) & 72 months (for Unreserved Individuals)
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
Coupon rate	Series I: 12.25% (Annual interest) Series II: 12.25% (Cumulative) Series III: 12.50% for RI & 12.25% for UI (Annual interest) Series IV: 12.50% for RI & 12.25% for UI (Cumulative) Series V: 12.50% for RI & 12.25% for UI (Cumulative)
Trustee	IL&FS Trust Company Limited
Listing	NSE & BSE
Depository	National Securities Depository Limited and Central Depository Services Limited
Registrars	Link Intime India Private Limited
Issuance	In physical and dematerialised form
Issue Open Date	September 14, 2012
Issue Close Date	September 27, 2012
Deemed Date of Allotment	The Deemed Date of Allotment for the NCDs shall be the date of issue of the Allotment Advice / Regret or such date as may be determined by the Board of our Company and/or a duly authorized committee thereof and notified to the BSE and NSE. All benefits under the NCDs including payment of interest will accrue to the NCD Holders from the Deemed Date of Allotment. Actual Allotment may occur on a date other than the Deemed Date of Allotment.
Eligible Investors
Category I (Institutional)	Resident Public financial institutions, statutory corporations, commercial banks, co-operative banks and regional rural banks incorporated in India and authorized to invest in the NCDs; Indian Provident funds, pension funds, superannuation funds and gratuity funds, authorized to invest in the NCDs; Indian venture capital funds registered with SEBI; Indian insurance companies registered with the IRDA; National Investment Fund; and Indian Mutual Funds registered with SEBI.
Category II (Non Institutional Investors)	Companies, bodies corporate and societies, registered under the applicable laws in India, and authorized to invest in the NCDs; Trusts settled under the Indian Trusts Act, 1882, public/private charitable/religious trusts settled and/or registered in India under applicable laws, which are authorized to invest in the NCDs; Resident Indian scientific and/or industrial research organizations, authorized to invest in the NCDs; Partnership firms formed under applicable laws in India in the name of the partners, authorized to invest in the NCDs; and Limited Liability Partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008 (No. 6 of 2009), authorized to invest in the NCDs.
Category III (Non Reserved Individual Investors)	Resident Indian individuals who apply for NCDs aggregating to a value more than Rs 0.5 million, across all Series of NCDs Hindu Undivided Families through the Karta who apply for NCDs aggregating to a value more than Rs 0.5 million, across all Series of NCDs Eligible Non Resident Individuals (on a non-repatriation basis only) who apply for NCDs aggregating to a value more than Rs 0.5 million, across all Series of NCDs
Category IV (Reserved Individual Investors)	Resident Indian individuals who apply for NCDs aggregating to a value not more than Rs 0.5 million, across all Series of NCDs; Hindu Undivided Families through the Karta who apply for NCDs aggregating to a value not more than Rs 0.5 million, across all Series of NCDs; Eligible Non Resident Individuals (on a non-repatriation basis only) who apply for NCDs aggregating to a value not more than Rs 0.5 million, across all Series of NCDs

Note: PAN card is mandatory for subscribing to these NCDs. A self attested copy shall be enclosed along with the application form.  

As seen above, investors' will have three options for subscription, earning a respective yield as presented below:

Series	I			II			III
Minimum Application amount (Rs)	10,000			10,000			10,000
Thereafter in Multiples of (Rs)	1,000			1,000			1,000
Tenor	36 months & 1 day			36 months & 1 day			60 months
Interest Payment	Yearly			N.A. (since Cumulative)			Yearly
Coupon	12.25% per annum			12.25% per annum			12.50% per annum (RI)			12.25% per annum (UI)
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 (%) *	12.25	12.25	12.25	12.25	12.25	12.25	12.50	12.50	12.50	12.25	12.25	12.25
Post Tax Returns (%) *	10.97	9.71	8.45	11.09	9.93	8.74	11.20	9.91	8.63	10.98	9.72	8.46

(Source: Draft prospectus registered with SEBI & PersonalFN Research)  

Series	IV						V
Minimum Application amount (Rs)	10,000						10,000
Thereafter in Multiples of (Rs)	1,000						1,000
Tenor	60 months						70 months			72 months
Interest Payment	N.A. (since Cumulative)						N.A. (since Cumulative)
	(RI)			(UI)			(RI)			(UI)
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 (%) *	12.50	12.50	12.50	12.25	12.25	12.25	15.40	15.40	15.40	14.85	14.85	14.85
Post Tax Returns (%) *	11.44	10.35	9.21	11.20	10.13	9.02	14.14	12.83	11.46	13.65	12.39	11.07

(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 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 NCDs?
  
  The interest earned on the NCD is chargeable to tax, under "income from other sources", and will be brought to tax at the marginal rate of taxation. To simply put, it will be taxed as per the tax bracket applicable to your total income for the relevant assessment year. It is noteworthy that no tax will be deducted at source if these bonds are subscribed to in the demat form.
   
• 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?
  
  Yes, but only on non-repatriation basis only.
   
• 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/Drafts have to be made in the favour of "Escrow Account RFL NCD Public Issue-R" by Non-NRI investors and for Eligible NRI Applicants applying on a non-repatriation basis must be made payable to "Escrow Account RFL NCD Public Issue-NR." The Cheques should be crossed "A/C PAYEE ONLY".
   

Our View:

The evaluation of the company's financial health reveals that the capital adequacy ratio is reasonable at 19.65% (as against the minimum 15% prescribed by RBI), for tier I & tier II capital. The Net Non-Performing Assets (NPAs) of the company constitutes 0.52% of the total loan book as on March 31st 2012 as compared to 0.02% as on March 31st 2011. This shows that the asset quality as deteriorated in real terms. The loan book of RFL has jumped from Rs 49,855.91 crore in 2010 to Rs 125,735.98 crore in 2012, thereby reflecting a growth of 59% CAGR. However this growth is mainly attributed to the growth in SME loans. Majority of disbursals have happened in 2011. While it appears that company has put risk management systems in place, any asset liability mismatch or a sudden spurt in NPA would be a big risk as it may weaken the financial position of the company. Moreover, the company has criminal proceedings against itself wherein the amount involved is Rs 36.327 crore as against Rs 4,429.1 crore involved in criminal proceedings initiated by the company against others.

As far as the NCD offer is concerned, we think that minimum ticket size has been kept low at Rs 10,000 to encourage the retail participation. Although stable ratings have been conferred for the issue ('CRISIL AA-' by CRISIL and 'ICRA AA-' Stable by ICRA) and yields are attractive, we think that the increase in the NPAs of the company at the above mentioned pace is worrisome. Hence, given that we recommend investors to stay away from the said NCD. However, if you risk appetite enables you to invest in such an NCD you may consider investing in the same to earn an attractive yield. Investors with cconservative and moderate risk profile may skip this NCD issue and wait for better rated "secured" NCDs from well established companies which may carry lower risk.

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