L&T Finance Ltd. has issued its redeemable secured NCDs for March 2019, Tranche-1. The issue was supposed to commence on 6th March and end on 20th March, but because of the high demand in the market of such AAA rated Company in terms of fulfilling financial obligations, the issue’s closure date went to 7th March 2019. It took the investors only 2 days to buy all the NCDs that were issued by the Lead Managers.
The yield on these NCDs is as high as 9.35% per annum which has attracted the investors. Also, ICRA, CARE and India Ratings have given it the highest credit rating. Now, the first question that comes to our minds when we hear the word NCDs is what are NCDs?
In Layman terms, NCDs are Non-Convertible Debentures which is a Debt instrument that a Company uses to raise funds from the public. As it is a debt instrument, it gives a fixed interest for a specific tenure until maturity period. Even the government uses such an instrument to raise funds which are known as government securities or G-secs which usually have a tenure of 5 to 10 years.
Now, why to invest in such NCDs?
Firstly, before investing, a smart investor must take into account the Company background. In the case of L&T, it is as follows:
L&T finance is just a subsidiary of the L&T Group which was founded in 1938 by two Danish refugee brothers which have its headquarters in Mumbai. Also, L&T Finance is one of the leading NBFC (Non-Banking Financial Company) in terms of total loans outstanding. Other fields in which L&T group has a presence in are as follows:
Infrastructure, Power, Heavy Engineering, Metallurgy, Electrical and Automation, Hydrocarbons, IT and Technology services, Shipbuilding, Construction equipment, Machinery, etcetera. It has $32 billion in terms of total assets as on March 2016 and an employee strength of approximately 109,000. The company is using these secure NCDs to tune Rupees 500 crores with an option to retain another Rupees 1,500 crores oversubscription.
There are different options of tenure for the investors which are 37, 60 and 120 months.
Features of L&T finance NCD:
Issue date- 6th March 2019
Closure date- 7th March 2019
Interest is payable in either monthly, annually or on maturity basis.
Face value/Par value of the bond- Rupees 1,000
Minimum investment- 10 Bonds i.e. Rupees 10,000 beyond which investment in multiples of 1 Bond can be done.
These NCDs will be listed on both BSE and NSE within 6 working days from the date of closure of issue hence these are liquid investments.
Non-Resident Indians cannot invest in these.
ICRA, CARE, and India ratings have rated it as AAA, hence the highest degree of safety regarding timely servicing of financial obligations, therefore, carrying low credit risk.
Lead Managers for the issue: Edelweiss Financial Services, AK Capital Services, Trust Investment Advisors and Axis Bank.
For the issue breakup, you may refer to the given link which will give you the Product Note.
L&T company financials also show that the company is increasing its profit margins compared to previous years. It had an interest income of Rupees 4,144 crores in FY17 which boomed to Rupees 5,245 crores in FY18. Also, the Net profits also escalated from Rupees 160 crores in FY17 to Rupees 289 crores in FY18. The Net NPA (Non-Performing Assets) is at 0.56% as of 31st March 2018.
Now, some of us who are totally risk averse will be wondering how an investment can be completely secure because we have all heard the famous Investment quote:
It’s easier to look back than to look into the future.
Why do not invest in these funds:
It is a highly competitive industry in which L&T operates and its inability to compete effectively in the future may affect the business adversely.
The company may not be able to maintain the current levels of profitability in subsequent years.
The company is obviously subject to laws and regulations governing banks and financial services industries in India. Any change in these can bring about an overnight change in the company policies.
So, should you invest in these?
To answer this question I would say that though the NCDs are secure, recently there has been news of various NBFC companies who have delayed their interest payments due to the liquidity crunch in the company. The best example of this is the fiasco that happened with DHFL (Dewan Housing Finance Ltd) and IL&FS (Infrastructure Leasing and Financial Services) 5 months back. To know more about it, you may watch the video:
But then again, in the market, if there is less risk then there is less return as well. To make money, we all have to make smart choices. Investing in these NCDs may turn out to be a smart choice for its investors.
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