Kosamattam Finance NCD Offer Review - August 2018 (May apply)

FKL is a frequent visitor for debt market issues.
The company provides financial as well as money changer services.
Attractive coupon rates, but poor rating.
Financial performance is showing improved trends.
Instruments will be listed on BSE only.

ABOUT COMPANY:

Frequent visitor to debt market Kosamattam Finance Ltd (KFL) is once again coming out with its NCD offer to mobilize Rs. 125 crore with a green shoe option to retain oversubscription to the extent of Rs. 125 crore, making the aggregate size of the offer of Rs. 250 crore. The company can issue up to Rs. 30 crore unsecured NCDs within the shelf limit of Rs. 250 cr. Kosamattam Finance that is primarily engaged in Gold Loan business is now doing business in areas such as money transfer services, foreign currency exchange, and air ticketing services.

KFL's Gold Loan portfolio for the financial years ending on March 31, 2018, March 31, 2017, and March 2016 comprised of 6,47,779, 5,57,478 and 4,79,540 gold loan accounts, aggregating to Rs. 2050.51 cr. , Rs. 1730.40 cr. and Rs. 1312.24 cr. respectively which is 91.56%, 90.03% and 89.12% of its total loans portfolio as on those dates. For financial years ended March 31, 2018, March 31, 2017, and March 31, 2016, company's yield on Gold Loan assets were 20.97%, 21.12%, and 26.35%, respectively. As on June 30, 2018, the company had a network of 923 branches spread in the states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry and employ 3,214 persons in business operations. It belongs to the Kosamattam Group led by Mr. Mathew K. Cherian. It is headquartered in Kottayam in the state of Kerala.

ISSUE DETAILS:

The company is offering Secured redeemable non-convertible debentures of Rs. 1000 each. It opens for subscription on 23.08.18 and will close on or before 21.09.18. Minimum application is to be made for 10 NCDs and in multiple of 1 NCD thereon, thereafter. The offer has the tenure of 24 months, 36 months, 48 months, 60 months and 84 months and interest payment modes cumulative, yearly or monthly as per the choice of investors. Coupon rates vary from 9.75% to 10.25%. Although coupon rates are lucrative, its poor grading makes is a bit risky. Post issue its debt-equity ratio will stand enhanced from 6.61 to 7.36. Funds mobilized through this issue will be used for onward lending as well repayment of existing loans with interest thereon.

FINANCIAL PERFORMANCE:

On the performance front, for the fiscal years ended March 31, 2018, March 31, 2017, March 31, 2016, March 31, 2015, and March 31, 2014, KFL's total income was Rs. 430.61 cr., Rs. 352.25 cr. Rs. 345.70 cr., Rs. 257.54 cr. and Rs. 261.87 cr. respectively. Its profit after tax the for these FYs was Rs. 30.82 cr., Rs. 15.68 cr., Rs. 11.23 cr. Rs. 5.28 cr. and Rs. 26.45 cr. respectively. It suffered a severe setback in FY15 and thereafter, it has posted gradual growth in its business. It had gross/net NPAs of 0.98%/0.59% (FY18), 0.57%/0.27% (FY17) and 0.45%/0.20% (FY16).

ISSUE RATING:

The issue is rated IND BBB (outlook stable) by India Rating & Research Pvt. Ltd. This rating indicates that instruments with this rating are considered to have a moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

MERCHANT BANKER'S TRACK RECORD:

The issue is solely managed by Vivro Financial Services Pvt Ltd and Vistra ITCL (India) Ltd is the Debenture Trustee. Karvy Computershare Pvt Ltd is the registrar to the issue. Post allotment, NCDs will be listed on BSE. On merchant banker's front, it has a track record of just 1 mainboard and 1 SME IPO since 2009 and has done mainly few debts offers in recent past as per details were given on their website.

Conclusion / Investment Strategy

Considering poor rating, Risk savvy investors may consider an investment for the medium term at their own risks. (Other)

Review By Dilip Davda on September 5, 2018

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

More Kosamattam Finance Ltd NCD Views / Analysis / Recommendations ...

Kosamattam Finance Ltd Review by Dilip Davda

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