Shriram Transport Finance Company Limited is currently offering Non-Convertible Debentures (NCD) at attractive interest rates. The NCD offering is open for subscription from July 26, 2012 to August 10, 2012. But the subscription to the issue is on a first come first serve basis. Shriram Transport Finance Company Limited (STFCL) is the flagship company of the Shriram group which has significant presence in Consumer Finance, Life Insurance, General Insurance, Stock Broking and Distribution businesses. Established in 1979, Shriram Transport, at present is the largest asset financing NBFC (Non-Banking Finance Company) in the country and holistic finance provider for the commercial vehicle (CV) industry and seeks to partner small truck owners for every possible need related to their assets.

The business model

STFCL is a major player in the domestic CV finance segment, with assets under management worth Rs 40,307 crore as on March 31, 2012. It is the leader in the pre-owned CV finance segment, with a market share of around 25%. The company has also improved its market position in the new CV finance segment, with a market share of around 8%. The company lends predominantly to the single-road transport operator (SRTO) segment, which accounts for more than 95% of its outstanding portfolio. STFCL has its focus in catering to the needs of the Small Truck Owner (STO) and financing pre-owned trucks. It has PAN India presence with 502 branch offices. The company has a live customer base exceeding 8,50,000. Moreover, the capital adequacy ratio of STFCL too, is quite impressive; CAR of 22.26% as on March 31, 2012 as against the stipulated CAR of 15% by the RBI. The net Non-Performing Assets (NPAs) form a miniscule 0.45% as on March 31, 2012 which indicates prudent management of assets.

Thus, in order to augment the lending and investment needs of the company, STFC is currently offering secured Non Convertible Redeemable Debentures (NCD) of face value of Rs 1,000 each at par aggregating to Rs 300 crore along with an green shoe option to retain oversubscription upto Rs 300 crore.

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

Issuer	Shriram Transport Finance Company Limited
Offering	Public Issue of NCDs aggregating upto Rs 300 crore with an option to retain over-subscription upto Rs 300 crore for issuance of additional NCDs aggregating to a total of upto Rs 600 crore.
Rating	'CARE AA+' by CARE & 'AA/Stable' by CRISIL
Security	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 Debenture Trustee and expenses payable in respect thereof shall be secured by way of first and exclusive charge in favour of the Debenture Trustee on an identified immovable property and specified future receivables 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
Options	Series I: 36 months, Annual Series II: 60 months, Annual Series III: 36 months, Cumulative Series IV: 60 months, Cumulative
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	First day of April every year
Trustee	IDBI Trusteeship Services Limited
Listing	NSE & BSE
Depository	National Securities Depository Limited and Central Depository Services Limited
Registrars	Integrated Enterprises India Ltd
Issuance	Demat form only; RI have the option to opt for physical form
Issue Open Date	July 26, 2012
Issue Close Date	August 10, 2012
Deemed Date of Allotment	Deemed date of allotment shall be the date of issue of the Allotment Advice / regret.
Eligible Investors
Category I	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	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	Resident Indian individuals who apply for NCDs aggregating to a value more than Rs 5 Lacs, across all Series of NCDs, (Series I, Series II, Series III and/or Series IV); and Hindu Undivided Families through the Karta who apply for NCDs aggregating to a value more than Rs 5 Lacs, across all Series of NCDs, (Series I, Series II, Series III and/or Series IV)
Category IV	Resident Indian individuals who apply for NCDs aggregating to a value not more than Rs 5 Lacs, across all Series of NCDs, (Series I, Series II, Series III and/or Series IV); Hindu Undivided Families through the Karta who apply for NCDs aggregating to a value not more than Rs 5 Lacs, across all Series of NCDs, (Series I, Series II, Series III and/or Series IV)

Note: PAN card is mandatory for subscribing to these bonds. A self attested copy shall be enclosed along with the application form.
Individual investors will have the following options available at the time of subscribing to the issue:

Series	I			II			III			IV
Minimum Application / Face Value	Rs 10,000			Rs 10,000			Rs 10,000			Rs 10,000
In Multiples of	Rs 1,000			Rs 1,000			Rs 1,000			Rs 1,000
Tenor	36 months			60 months			36 months			60 months
Interest Payment	Yearly			Yearly			Cumulative			Cumulative
Coupon Payment Date	April 1 every year			April 1 every year			N.A.			N.A.
Coupon	10.25% per annum			10.50% per annum			10.25% per annum			10.50% per annum
Additional Incentive	0.90%			0.90%			0.90%			0.90%
Aggregate Coupon	11.15% per annum			11.40% per annum			11.15% per annum			11.40% per annum
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 (%)	11.15	11.15	11.15	11.40	11.40	11.40	11.15	11.15	11.15	11.40	11.40	11.40
Post Tax Returns (%)	10.00	8.85	7.70	10.22	9.05	7.87	10.10	9.04	7.95	10.43	9.42	8.37

(Source: Shriram Transport Finance Co. Ltd. & PersonalFN Research)
Non Individual investors will have the following options available at the time of subscribing to the issue:

Series	I			II			III			IV
Minimum Application / Face Value	Rs 10,000			Rs 10,000			Rs 10,000			Rs 10,000
In Multiples of	Rs 1,000			Rs 1,000			Rs 1,000			Rs 1,000
Tenor	36 months			60 months			36 months			60 months
Interest Payment	Yearly			Yearly			Cumulative			Cumulative
Coupon Payment Date	April 1 every year			April 1 every year			N.A.			N.A.
Coupon	10.25% per annum			10.50% per annum			10.25% per annum			10.50% per annum
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 (%) *	10.25	10.25	10.25	10.50	10.50	10.50	10.25	10.25	10.25	10.50	10.50	10.50
Post Tax Returns (%) *	9.19	8.14	7.08	9.41	8.33	7.25	9.28	8.29	7.29	9.59	8.65	7.68

(Source: Shriram Transport Finance Co. 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 in a demat form and are listed on the exchange. However, for Reserved Individual (RI) opting for physical form, TDS will take place accordingly.
  
  
• 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 STFC NCD Public Issue" and crossed "A/C PAYEE ONLY".
  
  

OUR VIEW:

In our opinion the yields on investment offered by STFCL are quite appealing. Also, the credit rating allotted to the issue is stable (AA+ by CARE and AA/Stable by CRISIL) along with the ticket size (minimum investment amount) being kept low at Rs 10,000/- (in order to encourage greater retail participation).

Moreover, the company has a Debt to Equity ratio of 4.03 (post NCD issue the D/E ratio will be 4.13) and an interest coverage ratio of 1.82 indicating that the company is comfortably leveraged and is well placed to service its debt for the kind of business model it follows.

Thus, from a holistic point of view NCD of STFCL is worth subscribing for. However, depending upon your cash flow needs, you may select either the annual coupon payments option or the cumulative option wherein interest along with the principal amount is available on maturity only. Moreover, it would be prudent to invest in this issue from a long term point of view (for 60 months depending upon your investment horizon) due to better yields on the offering.

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Comments
sribhat@in.com Aug 08, 2012 How to buy these NCDs,whom I need to approach? should I need to have demat account? If yes,Is there any one who is offering free demat account?If my intention is only to buy and hold it until it's maturity,what i have to do to minimize cost of acquisition,holding and to en cash @ maturity? APPRECIATE EARLY REPLY THANKS YOU
info@personalfn.com Aug 09, 2012 Dear Sribhat, You need to have a demat account. However, if the investment amount is below Rs 5 lakh then you can opt for the physical form of the NCDs. Such issues can be subscribed through PersonalFN. However, please remember to give application forms before the issue date of the NCD as such lucarative NCDs are oversubscribed within the first two days.
sdisrani@gmail.com Jul 22, 2012 Is 4:1 debt equity really good?
aniruddha.athani@yahoo.in Jul 23, 2012 What exactly is the "Additional Incentive" of 0.90% and in which cases is it applicable?
jigisha201053@gmail.com Jul 23, 2012 Dear Sir, Error in Post Tax Returns (%) In Series III & IV For Individual Investor and Non Individual Investor. Pl check ? Jigisha Shah

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