Edelweiss Financial NCD (April 2021) issue review (May apply)

Second debt issue within four months of previous offer.
The group has diverse activities in the financial sector.
On a consolidated basis it has suffered a setback for FY20 and H1 FY21.
The company replaced rating agency CARE by ACUITE.
EFSL is offering a lucrative coupon rate despite higher rating is surprising.

ABOUT COMPANY:

Edelweiss Financial Services Ltd. (EFSL), the flagship company of 'Edelweiss' group is coming out with its maiden debt offer this month.

After commencing the business as an investment banking firm, the Company, through its subsidiaries has now diversified its businesses to include credit including retail and corporate credit, wealth management, asset management, asset reconstruction and insurance including life and general insurance businesses, which are conducted through its subsidiaries. It believes that research driven and client-centric approach and consistent ability to capitalize on emerging market trends has enabled it to foster strong relationships across corporate, institutional (both domestic and international), high net worth individuals and retail clients.

EFSL has a Pan-India and international network with approximately 312 offices, including two corporate offices in Mumbai and 10 international offices, in approximately 143 cities in India and six international locations and employed approximately 8844 employees as at December 31, 2020. Thus its branch office and employees count has shown decline against its position as at September 30, 3020.

The group comprises 47 subsidiaries (including NBFCs and an HFC) as at December 31, 2020. The company believes that its diversified business strategy has improved the resilience of business model across economic cycles.

EFSL constantly pursues innovation and invests in new ideas, newer products, and newer alternate channels of delivery and so on. The company seek to add significant value by providing new and innovative products and services and are committed to focusing on six key vectors in journey into the future - people management, cost management, risk management, technology, customer experience and innovation - while adhering to its business principles - which emphasize placing its clients' interests first, commitment to excellence and innovation and teamwork.

ISSUE DETAILS:

EFSL is coming out with Non Convertible Debenture (NCD) issue worth Rs. 200 crores with a green shoe option of retaining oversubscription to the tune of Rs. 200 crores, thus taking the total issue size to Rs. 400 cr. The company is offering NCD having face value of Rs. 1000 each. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiples of 1 NCD (Rs. 1000) thereon, thereafter. The issue is opening for subscription on April 01, 2021, and will close on or before April 23, 2021. Post allotment, NCDs will be listed only on BSE.

The company is offering coupon rates ranging from 9.10% to 9.70% and having tenures of 36 months, 60 months and 120 months. The interest will be paid on monthly, annually or cumulative basis as per the choice of investors.

The company is likely to spend around Rs. 9.00 cr. for the entire issue process worth Rs. 400 crores. The company is going to use 75% of the net proceeds of this issue for the purpose of repayment/prepayment of interest and principal of existing borrowings and 25% for general corporate fund needs. Allotment in all these categories will be done on 'First come - First served' basis. EFSL has reserved 10% for QIBs, 10% for Corporate, 40% for HNIs and 40% for retail investors.

The issue is solely lead managed by Equirus Capital Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Beacon Trusteeship Ltd. is the debenture trustee.

This issue is rated 'Acuite AA' by Acuite Ratings & Research Ltd. and BWR AA-/Stable by Brickwork Ratings India Pvt. Ltd. Instruments with this rating are considered to have adequate/high degree (respectively) of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. This time the company has replaced rating agency CARE by Acuite.

However, it is worthwhile to note that both agencies have mentioned 'alert' as disclaimer that says that they hold the right to suspend or withdraw the rating at any time on the basis of factors such as new information. Also the rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating.

FINANCIAL PERFORMANCE:

On the financial performance front, on a consolidated basis, EFSL has posted total income / net profit (loss) of Rs. 11161.23 cr. / Rs. 995.17 cr. (FY19), Rs. 9602.63 cr. / Rs. - (2045.24) cr. (FY20). For the first half ended on September 30, 2020 of current FY21, it has posted loss of Rs. - (293.58) cr. on a total income of Rs. 4176.56 cr.

As on December 31, 2020, the group had customer assets AUM of Rs. 224600 crores. As of September 30, 2020, on a consolidated basis, EFSL had a paid up equity capital of Rs. 89.00 cr. supported by free reserves of Rs. 5778 cr. Its debt equity ratio of 4.87. as of September 30, 2020 will stand enhanced to 4.93 post this issue. As of same date its capital adequacy ratio stood at 20.62% while its gross/net NPAs were at 5.14% / 3.43% respectively as of December 31, 2020. EFSL's equity as of December 31, 2020 stood at Rs. 93.50 cr.

Conclusion / Investment Strategy

Based on rating the coupon rates are very attractive and tempting. However, since the company has posted losses for last one and half fiscal a caution is needed. The company has also changed one of its rating agency for this issue, which too raises eyebrows. Though debt instruments with AA or AAA are most preferred by investors, this AA rated instrument with higher coupon rates may attract investment from those who seek regular interest income in the falling interest rate regime. Those who have appetite for risk and surplus funds may consider investment at their own risks.

Review By Dilip Davda on March 31, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

The Edelweiss Financial NCD April 2021 Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered NCD Analysts tells you if Edelweiss Financial NCD April 2021 worth investing. The Edelweiss Financial NCD April 2021 Note sets the NCD expectations in systematic way which tells you if Edelweiss Financial NCD April 2021 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Edelweiss Financial NCD April 2021 by providing NCD recommendations i.e. subscribe, avoid and neutral.

Edelweiss Financial NCD (April 2021) issue review (May apply)

Conclusion / Investment Strategy

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