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SREI Infra Day 1 of  Opening

As expected SREI Infra NCD issue got a tepid response from investors with just .5 x subscription. SREI Infra NPA levels (4%) & past credit downgrades seems to have weighed down on investor sentiment

About the Issue

On account of low Bank interest rates and absence of any tax-free bonds issue, NCD issues like Dewan Housing Finance Corporation Limited (DHFL) Tranche I as well Tranche II and Edelweiss Housing Finance Ltd. have evoked good interest from institutions and investors.

This was prompted other NBFCs to join the bandwagon and Kolkata based SREI Infrastructure Finance Ltd’s (SIFL) is coming out with Secured Redeemable Non-Convertible Debentures of Face Value of Rs. 1,000/- each , aggregating  to  Rs. 250 crore  (“Base Issue Size”), with an option to retain oversubscription upto the Shelf Limit i.e. Rs. 1,000 crore  (“Tranche 1 Issue”)

Details:

Issue opens : opens on 7th September 2016 ; Closes on 28th September 2016  – First come First basis
Lead Managers  :  ICICI Securities Limited, A. K. Capital Services Limited, Edelweiss Financial Services Limited, IIFL Holdings Limited, Karvy Investor Services Limited, Srei Capital Markets Limited,  Trust Investment Advisors Private Limited  and YES Securities (India) Limited.

RATING   :  BWR AA+  by Brickwork Ratings . Its earlier issue of NCDs in 2015 was rated CARE AA- by CARE and BWR AA by Brickwork Ratings.  A small improvement in rating has been possible due to uptick in infrastructure & SREI ability to slightly reduce its NPA which still stand at about 4%. Further it may be mentioned that in Sept 2015 Rating agency CARE  had further  downgraded ratings for company’s  long term bonds and debentures on rise in non-performing assets (NPAs) and restructured assets. The rating for long term infrastructure bonds was cut from “AA-“ to “A+” and unsecured bonds from “AA-“ to “A”. Subsequent improved performance has led to a marginal pull back in credit rating by Brickwork.

About the Company:

SREI is a finance company with lending operations in infrastructure. It also operates in :

  1. Project Financing of Infrastructure
  2. Project Advisory & development
  3. Equipment Finance in Infra sector, Rquipment Rental
  4. Power Sector
  5. Capital Markets, venture capital, Insurance & Broking services

Other notable points about the company are :

  • The company has history of over 25 years in the infrastructure sector.
  • With 99 offices pan India we boast of a large customer base and over 367,028 million of Consolidated Assets Under Management as on March 2016 stood at 36,000 crore .
  • Srei is classified as “Infrastructure Finance Company Status (IFC)” by the Reserve Bank of India (RBI) within the overall classification of Non-Banking Finance Company.
  • Srei has also been notified as a “Public Financial Institution” by the MCA, under section 4A of Companies Act, 1956 (now Section 2(72) of the Companies Act, 2013).
  • SREI is engaged for last 25 years in providing services in the infrastructure sector: infrastructure project finance, advisory and development, infrastructure equipment finance, venture capital, capital market, Equipment rental, integrated rural network of Common Services Centres (CSCs), insurance broking, SEZ and industrial park and Environment.
  • Srei Infra’s power arm, India Power has formed 50:50 joint venture with a German power company, Uniper. The entity is to focus on a broad range of services in the power sector.
  • In last 2-3 years as As infrastructure spending slowed, disbursements and profits of SREI were also affected.  In FY15 SREI’s Gross NPA ratio deteriorated to 6.62% from 3.53% in March 2014. Also the net NPAs went up to 5.51% from 3.09% in March 2014.The Company posted muted financial results for year 2015-16 and had been grappling to contain NPA. The NPA have come down to around 4%.

NCD Offer Details:

The object of the proposed issue is to raise funds for various leading/financing activities to repay the company’s existing loans and business operations.
Category 1: Institutional Category, Category II: Non-Institutions, category III- Individuals

Series I II III IV V VI VII
Frequency of Interest Payment Cumulative Monthly Annual Cumulative Monthly Annual Cumulative
Minimum  Application ` 10,000/- (10 NCDs) across all Series
Face Value/Issue Price of NCDs ( / NCD) ` 1,000/-
1,000 (1NCD) 1,000 (1NCD) 1,000 (1NCD) 1,000 (1NCD) 1,000 (1NCD) 1,000 (1NCD) 1,000 (1NCD)
In Multiples of ( )
Tenor from Deemed Date of Allotment 400 days 3 years 5 years
Coupon (% per annum) for Category I, Category II & Category III Investor(s)
N.A. 9.35% 9.75% N.A. 9.60% 10.00% N.A.
Effective Yield (per annum) for Category I, Category II & Category III Investor(s)
9.08% 9.76% 9.82% 9.75% 10.02% 10.04% 10.00%
Mode of Interest Payment Through various mode available.
Amount (  / NCD) on Maturity for
Category  I Category II & Category III Investor(s) 1,100/- 1,000/- 1,000/- 1,322/- 1,000/- 1,000/- 1,611/-
Maturity Date (from Deemed Date of Allotment)
400 days 3 years 3 years 3 years 5 years 5 years 5 years

Financial Results:

Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
Sales 2,433.90 3,188.74 3,235.17 3,339.32 3,234.14
Expenses 479.5 518.89 521.11 696.54 629.96
Operating Profit 1,954.40 2,669.85 2,714.06 2,642.78 2,604.18
OPM 80.3 83.73 83.89 79.14 80.52
Other Income 12.43 25.8 25.19 21.24 27.8
Interest 1,565.03 2,139.25 2,350.28 2,274.15 2,310.75
Depreciation 165.03 193.62 163.35 201.43 215.29
Profit before tax 236.77 362.78 225.62 188.44 105.94
Tax 113.62 102.71 88.11 67.04 44.41
Net Profit 111.42 263.18 138.51 129.11 72.52
EPS (unadj) 2.14 5.14 2.67 2.46 1.34
Dividend Payout % 22.57 15.88 18.18 19.49 34.69

The company had a bad patch in last 2-3 years and seems to be coming out of it. Its Q1Fy17 results were better.

Assessment:

  • All Categories of investors can apply in NCDs across all Series of different tenors – 400 days, 3 years and 5 years. There is no special markup for retail.
  • The present issue of Bonds are rated AA+ by Brickwork Ratings, which ensure a good degree of safety. Its earlier issue of NCDs in 2015 was rated CARE AA- by CARE and BWR AA by Brickwork Ratings. In sept 2015, CARE had further downgraded its Ratings from “AA-“ to “A+” and unsecured bonds from “AA-“ to “A”.  Some progress on the NPA and financial front and pickup in infra sector has again given it some life and led to present rating by Brickwork. Thus the company is prone to credit downgrades.
  • SREI is a finance company with lending operations in infrastructure. It also operates in project advisory and equipment finance. As infrastructure spending slowed, disbursements for SREI were also affected.
  • In the scenario of falling interest rates, SREI Infra NCD is providing attractive interest rate of 9.50% to 10% per annum. Also the debentures are secured in nature which means in case of default by company investors would get priority in repayment of capital along with interest. But liquidity is a big issue.
  • NCDs are taxable, thus the return get reduced by marginally. So for the investors falling in high tax bracket of 30%, investing in NCDs does not make sense at all.
  • With upfront brokerage from brokers in range 1%, debt issues have also been attracting people looking for short term returns. However SREI bonds presently listed are not traded frequently & hence investors could better stay with 10% Edelweiss Housing finance NCDs (AA rates) which are available at reasonable price.

 

 

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