SREI Infra

By Research Desk
about 5 years ago
SREI Infra

By Geetanjali Kedia

 

Introduction:

Kolkata head-quartered SREI Infrastructure Finance has entered the debt capital market with a public issue of secured redeemable non-convertible debentures (NCD) of face value Rs. 1,000 each to raise Rs. 75 crore with an option to retain an over-subscription of Rs. 75 crore, aggregating to Rs. 150 crore.

 

Issue Details:

To open on 9th May 2014 and will close on 19th May 2014 (updated from 9th June 2014 earlier), with an option in company’s hands to either close the issue earlier or extend the closing. Minimum application amount is Rs. 10,000, and in multiples of Rs, 1,000 thereafter.

 

Rating: Unchanged from its previous issues in FY13 (April, August and December), ‘AA-’ by CARE and ‘AA’ by BRICKWORK indicating high degree of safety for timely servicing of financial obligations.

 

Listing: On BSE and NSE with one NCD comprising a trading lot. NCD would be issue on both demat and physical form to retail investors. To institutional and non-institutional investors, allotment is only in the demat form and trading on the exchanges is also compulsorily in demat form.

 

What’s on offer: The NCD issue has 6 investment options for individuals/HUF and 3 for institutional and other investors, as under:

 

Particulars

Series I

Series II

Series III

Series IV

Series V

Series VI

Tenure

3 years

3 years

3 years

5 years

5 years

5 years

Investors who can apply

All

All

Only Individuals

All

All

Only Individuals

Type of Security

Only Demat

Demat or physical

Demat or physical

Only Demat

Demat or physical

Demat or physical

Frequency of interest payment

Monthly

Annual

Cumulative

Monthly

Annual

Cumulative

Coupon Rate (% pa)

 

 

 

 

 

 

  • Individual Investors

11.40%

12.00%

NA

11.40%

12.00%

NA

  • Others

10.70%

11.25%

NA

10.95%

11.50%

NA

Effective Yield (% pa)

 

 

 

 

 

 

  • Individual Investors

12.00%

12.00%

12.00%

12.00%

12.00%

12.00%

  • Others

11.23%

11.25%

NA

11.51%

11.50%

NA

Redemption Amount (per NCD)

 

 

 

 

 

 

  • Individual Investors

Rs. 1,000

Rs. 1,000

Rs. 1,405.40

Rs. 1,000

Rs. 1,000

Rs. 1,762.90

  • Others

Rs. 1,000

Rs. 1,000

NA

Rs. 1,000

Rs. 1,000

NA

 

Company Background:

SREI Infrastructure Finance provides financial products and services for infrastructure development and construction. For FY13, consolidated total income stood at Rs. 3,110 crore with PAT of Rs. 263 crore and AUMs of Rs. 33,330 crore, as of 31st March 2013. However, its asset quality deteriorated sharply, with gross NPAs surging to 2.77% from 1.58% of 31st March 2012, and net NPAs nearly doubling to 2.30%, from 1.18% a year ago. Even as of 30th September 2013, NPA situation did not improve with gross NPAs high at 2.91% and net NPAs at 2.37% Thus, there is considerable stress on the company’s books. For first nine months of FY14, company’s consolidated total income was Rs. 2,392 crore and PAT Rs. 136 crore with AUMs of Rs. 34,754 crore.  

 

Rate of Return:

The company is offering 12% yields to individual investors for both 3 and 5 years tenure across different modes of interest payments. While this may be attractive bank FDs, the AA- credit rating is not very comforting. Plus, the bad loans stress is yet to be got under control.

 

12.00% pa translates into post-tax returns of 8.29%, assuming 30.90% tax rate and 9.55% and 10.79% for 20% and 10% tax brackets respectively. Thus, for individuals in 20% or 30% tax bracket, post-tax earnings are in single digits.

 

Recommendation:

Credit rating of AA- by CARE is not very comforting. Avoid the NCD.

 

 

 

 

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