Edelweiss Financial NCD (Dec. 2020) issue review (May apply)

Maiden debt offer from the flagship company of 'Edelweiss' group.
The group has diverse activities in the financial sector.
On a consolidated basis it has suffered a setback for FY20 and H1 FY21.
The instrument is rated CARE A+/Stable and BWR AA-/Stable.
EFSL is offering a lucrative coupon rate despite higher rating is surprising.
Is it offering higher coupon rates as it has posted poor performance recently?

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 339 offices, including two corporate offices in Mumbai and 10 international offices, in approximately 145 cities in India and six international locations and employed approximately 9,197 employees as at September 30, 2020.

The group comprises 47 subsidiaries (including NBFCs and an HFC) as at September 30, 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. 100 crore with a green shoe option of retaining oversubscription to the tune of Rs. 100 crore, thus taking the total issue size to Rs. 200 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 December 23, 2020 and will close on or before January 15, 2021. Post allotment, NCDs will be listed only on BSE.

The company is offering coupon rates ranging from 9.35% to 9.95% 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. 3.68 cr. for the entire issue process. 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.

The issue consists of 10% QBI portion, 10 % corporate portion, 40% HNI portion and balance 40% Retail portion. Allotment in all these categories will be done on 'First come - First served' basis.

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 CARE A+/Stable by CARE Ratings 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.

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. - (2045.25) cr. (FY20). For the first half ended on September 30, 2020 of current FY21, it has posted loss of Rs. - (293.95) cr. on a total income of Rs. 4176.56 cr.

As on September 30, 2020, on a consolidated basis, EFSL had a paid up equity capital of Rs. 89 cr. supported by free reserves of Rs. 5778 cr. and debt equity ratio of 4.87. As on same date its capital adequacy ratio stood at 20.62% and gross/net NPAs at 5.46/3.80 respectively.

Conclusion / Investment Strategy

Based on rating the coupon rates are very attractive and tempting, but a caution is needed as debt market experts are divided on this. Some say that being the first debt offer, the company is offering investor friendly coupon rates, while other says that due to recent poor financial performance, despite A/AA rating, the company is compelled to opt for higher interest rates. Thus a caution is needed for investment in tempting offer. However, since company is going to utilize around 75% for debt clearances, it may augur well going forward. Cash surplus, risk savvy investors may consider investment in this offer. (Other).

Review By Dilip Davda on December 21, 2020

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 December 2020 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 December 2020 worth investing. The Edelweiss Financial NCD December 2020 Note sets the NCD expectations in systematic way which tells you if Edelweiss Financial NCD December 2020 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Edelweiss Financial NCD December 2020 by providing NCD recommendations i.e. subscribe, avoid and neutral.