Sakthi Finance NCD issue review (May apply)

This is the third debt offer from the company since February 2015.
It has suffered a setback for 9M FY21 in its performance.
ICRA/BBB (Stable) rating indicates moderate risk on timely servicing and credit.
Though it offers lucrative coupon rates, poor rating raises concern.

ABOUT COMPANY:

Sakthi Finance Ltd. (SFL) is a part of Sakthi Group and has a track record of over four decades in commercial vehicle financing segment. Primarily being an investment and credit company, it is focusing on financing pre-owned commercial vehicles. It has also ventured into financing for purchasing infrastructure construction equipment's, multi-utility vehicles, cars, jeeps and other machinery. Its target customers are from the rural and semi-urban areas comprising Small/Medium Road Transport Operators.

It has also invested in 17 wind mills power generation and selling it to TN Electricity Board and Gujarat Urja Vikas Nigam Ltd. As of December 31, 2020, it has an Asset Under Management worth Rs.1132.48 cr. It has 91% contribution in revenue from hire-purchase business.

SFL is coming out with its third debt offer since February 2015. Its last debt offer was in March 2020.

ISSUE DETAILS:

The company has entered the primary market with its rated secured as well as unsecured non-convertible debentures with a base size of Rs. 100 cr. with an option to retain oversubscription up to Rs.100 cr. thus making the total float worth Rs. 200 cr. The issue has already opened for subscription on June 29, 2021, and will close on or before July 28, 2021. Minimum application is to be made for 10 NCDs i.e. Rs. 10000.00 and in multiple of 1 NCD i.e. Rs. 1000.00 thereon, thereafter. Post allotment, it will be listed on BSE. The allotment and trading of these securities will be traded only in dematerialized form. SFL will be spending Rs. 4 cr. for this entire issue process.

The issue is solely lead managed by Dalmia Securities Pvt. Ltd. while Catalysts Trusteeship Ltd. is the debenture trustee and Link Intime India Pvt. Ltd. is the registrar to the issue.

These NCDs are rated as ICRA BBB (stable) by ICRA Ltd. which indicates moderate degree of safety regarding timely servicing of financial obligations and carry moderate credit risk.

This NCD carries coupon rates ranging from 9.50% to 10.50% p.a., and having interest payment mode of Monthly or Cumulative as per the preference of investors. The tenure for these NCDs will be 26 months, 39 months, 49 months and 61 months. Unsecured NCDs are available only under 61 months' tenure and carries coupon rate of 10.50% p.a.

SFL will use up to 75% of the net proceeds for onward lending, financing and for repayment/prepayment of principal and interest of existing borrowings and 25% for general corporate purposes.

FINANCIAL PERFORMANCE:

On the financial performance front, SFL has posted total income/net profit of Rs. 1680.50 cr. / Rs. 95.75 cr. (FY19), Rs. 1702.26 cr. / Rs.111.79 cr. (FY20) and for 9 months' period ended on December 31, 2020 of FY21 it has earned net profit of Rs. 71.99 cr. on a total income of Rs. 1257.59 cr. Its Net NPAs for these periods were 2.94%, 2.81% and 2.53% respectively. Its debt equity ratio of 6.76 as of December 31, 2020, will stand enhanced to 8.04 post this issue.

Conclusion / Investment Strategy

Though the group parentage is sound, poor rating by ICRA raises concern. It offers lucrative coupon rates due to BBB rating that carries moderate risk. Hence cash surplus/risk savvy investors may consider parking their fund at their own risks.

Review By Dilip Davda on July 4, 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 Sakthi Finance NCD June 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 Sakthi Finance NCD June 2021 worth investing. The Sakthi Finance NCD June 2021 Note sets the NCD expectations in systematic way which tells you if Sakthi Finance NCD June 2021 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Sakthi Finance NCD June 2021 by providing NCD recommendations i.e. subscribe, avoid and neutral.

Sakthi Finance NCD issue review (May apply)

Conclusion / Investment Strategy

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