L&T Finance NCD Tranche-I issue review (Apply)

LTFL taps debt market after 2010 with a shelf overall limit of Rs 5000 cr.
This offer is rated as ICRA/AAA Stable, CARE/AAA Stable, IND/AAA Stable.
The issue offers yield on redemption up to 9.35% p.a.
Post allotment, NCDs will be listed on BSE and NSE.

L & T Finance Limited (LTFL) is one of the leading private non-banking financial services companies in India in terms of total loans outstanding, as of December 31, 2018. Its Promoter is registered with the RBI as a Non-Banking Finance Company – Core Investment Company ('NBFC-CIC') conducting business through its wholly-owned subsidiaries. The Company is a part of the larger L&T group which is one of the leading business conglomerates in India, with presence across infrastructure, power, heavy engineering, electrical and automation, hydrocarbons, IT and technology services, financial services, project development, metallurgical and material handling, realty, shipbuilding, construction equipment, machinery and industrial products sectors. It tapped the debt market with its maiden NCD offer in August 2009 and then in February 2010 and got an overwhelming response.

Company's operations are spread throughout India and it has 223 branches in 218 cities across 21 states and 3 union territories, as of December 31, 2018. In addition, for its microloans business, it has 1,181 meeting center covering 274 districts across 14 states in India, as of December 31, 2018. The company has 19,649 employees as of December 31, 2018. Each of its businesses is led by senior executives who are, generally, also responsible for certain organizational functions at the group level. Together, they have demonstrated the ability to manage and grow the company's operations. According to management, LTFL enjoys surplus liquidity at any given point of time and thus leverages its cost of borrowing and lending with net interest margins of around 5%.

ISSUE DETAIL

The company is coming up with a Tranche-I issue of 50,00,000 Secured Redeemable Non-Convertible Debentures ('NCDs') of the face value of Rs 1,000 each. The NCD Issue aggregates to Rs 500 crore, with an option to retain over-subscription up to Rs 1,000 crore for issuance of additional NCDs, aggregating up to a total of Rs 1,500 crore. It has a shelf limit of Rs 5000 cr. The NCD Issue with various investment options and the yield on Redemption of up to 9.35% (per annum) opens on 06^th March 2019 and will close on or before 20^th March 2019.

These NCDs, bearing a fixed rate of interest, are being offered under three different Series. For Category I (QIB Portion) and Category II (Corporate Portion) holders, the coupon rate for Series Ito series VI having a tenure of 37 months, 60 months and 120 months respectively, shall be 8.75% to 9.35% p.a., payable monthly, annually or cumulative as per the choice of investors.

Net proceeds of the issue will be utilized for the purpose of onward lending, financing, refinancing the existing indebtedness of L&T Finance Limited - payment of the interest and/or repayment /prepayment of principal of borrowings (up to 75%) - and the rest for general corporate purpose.

The NCDs proposed to be issued under this Issue have been rated '[ICRA] AAA (stable) (pronounced as ICRA triple-A with Stable outlook)' CARE AAA / Stable and IND AAA / Stable. The rating of NCDs by ICRA, CARE and India Ratings indicate that instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations and carry lowest credit risk.

Terms of Each Series

Series	I	II	III*	IV	V	VI
Frequency of Interest Payment	Annual	NA	Annual	Monthly	Annual	Monthly
Minimum Application	Rs 10,000 (10 NCDs) across all Series
Face Value/ Issue Price of NCDs (Rs / NCD)	Rs 1,000
In Multiples of thereafter (Rs )	Rs 1,000 (1 NCD)
Tenor	37 months	37 months	60 months	60 months	120 months	120 months
Coupon (% per annum) for NCD Holders in Category I & II	9.00%	NA	9.10%	8.75%	9.20%	8.84%
Coupon (% per annum) for NCD Holders in Category III & IV	9.10%	NA	9.25%	8.89%	9.35%	8.98%
Effective Yield (% per annum) for NCD Holders in Category I & II	9.00%	9.00%	9.09%	9.10%	9.19%	9.20%
Effective Yield (% per annum) for NCD Holders in Category III & IV	9.10%	9.10%	9.24%	9.25%	9.34%	9.35%
Mode of Interest Payment	Through various mode available
Amount (Rs / NCD) on Maturity for NCD Holders in Category I & II	Rs 1,000	Rs 1,304.93	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000
Amount (Rs / NCD) on Maturity for NCD Holders in Category III & IV	Rs 1,000	Rs 1,308.64	Rs 1,000	Rs 1,000	Rs 1,000	Rs 1,000
Put and Call Option	NA	NA	NA	NA	NA	NA

The Lead Managers to the Issue are Edelweiss Financial Services Ltd., A K Capital Services Ltd., Axis Capital Ltd. and Trust Investment Advisors Pvt. Ltd. Catalyst Trusteeship Ltd. is the Debenture Trustee and Link Intime India Pvt. Ltd. is the registrar to the issue.

Post allotment, NCDs will be listed on the BSE and NSE.

L&T Finance NCD Review

FINANCIAL PERFORMANCE

LTFL has (on a consolidated basis) performed well and has maintained growth despite lull for the sector in the recent past. For the last two fiscals, it has posted total income/net profits of Rs 4144.98 cr. / Rs 42.66 cr. (FY17) and Rs 5245.69 cr. / Rs 332.25 cr. (FY18). For the said periods, its gross NPAs were 6.51% and 6.07% while Net NPAs were 3.99% and 2.81% respectively. For the first nine months of FY19 it has (on a standalone basis) earned a net profit of Rs 687.20 cr. on a total income of Rs 5097.20 cr. Post issue, its debt/equity ratio will stand enhanced to 5.40 from 4.84 as on 31.12.18. On the said date LTFL's paid-up equity capital was Rs 159.91 cr. and free reserves were Rs 740.73 cr.

Conclusion / Investment Strategy

After long AAA debt offer is coming to tap the market and that too from the house of Larsen & Toubro, with lucrative coupon rates. Investors looking at regular monthly income may consider investment for medium to long term. (Subscribe)

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on February 28, 2019

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 L&T Finance NCD March 2019 Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered NCD Analysts tells you if L&T Finance NCD March 2019 worth investing. The L&T Finance NCD March 2019 Note sets the NCD expectations in systematic way which tells you if L&T Finance NCD March 2019 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in L&T Finance NCD March 2019 by providing NCD recommendations i.e. subscribe, avoid and neutral.