A Close Look at the New Non-Convertible Debenture Opportunity

A fresh non-convertible debenture (NCD) offering has entered the market, and it's generating quite a buzz among investors. With a potential raise of up to Rs 190 crore, this latest offering is one that could provide steady returns, especially for those looking for a reliable fixed-income investment. Here’s what this NCD issuance is about and how it could impact the market.

The Details of the NCD Offering

The NCDs being issued will have a face value of Rs 1 lakh each, with a coupon rate of 2% over the base rate, making this offering appealing to investors looking for a relatively higher return compared to typical fixed-income options. The initial offering is up to Rs 100 crore, with an option to extend the amount by an additional Rs 90 crore depending on the demand from investors. These bonds will be redeemable, secured, and listed on the Bombay Stock Exchange (BSE), which gives them a clear edge in terms of liquidity.

With the BSE listing, investors can easily trade these NCDs, providing them the flexibility to manage their investments with more control. This structure aims to attract investors who want the security of a fixed-income instrument, but also want the flexibility to liquidate their holdings when needed.

Background of the Issuing Company

The company behind this new NCD offering is a prominent non-deposit-taking non-banking financial company (NBFC) that’s part of the well-established Cyrus Poonawalla Group. Known for its diverse range of financial products, the company serves multiple sectors with offerings such as pre-owned car loans, personal loans, business loans, loans to professionals, machinery financing, and medical equipment loans. This broad portfolio ensures that the company is not heavily reliant on one specific market segment, offering some protection against sector-specific downturns.

As of September 2024, the company had assets under management (AUM) totaling Rs 28,396 crore. However, despite its impressive market reach and diversified portfolio, the company reported a net loss of Rs 471.04 crore in Q2 FY25, a stark contrast to the net profit of Rs 860.17 crore from the same quarter in FY24. These figures have understandably raised concerns among potential investors, but the company’s diverse operations suggest it may have the capacity to recover.

Key Features of the NCDs

The NCDs being offered will have a face value of Rs 1 lakh and come with a competitive 2% coupon rate above the base rate. This means that investors can expect returns higher than what is typically offered by fixed-income products. Given the NCDs are secured, rated, and listed on the Bombay Stock Exchange (BSE), they come with added credibility, which makes them appealing to risk-conscious investors.

Since the bonds are redeemable, investors can be assured that they will receive their principal back at the end of the tenure, assuming no defaults. The BSE listing also means that investors have the opportunity to trade these debentures, adding another layer of flexibility to the investment.

Why is This NCD Issuance Happening Now?

The primary motivation behind this NCD offering is likely to raise capital for the company. The funds generated could be used for a variety of purposes such as expanding its business operations, managing existing debt, or investing in new ventures. The green shoe option allows the company to adjust the amount raised depending on the demand, giving it a flexible edge in managing investor interest.

While the company is currently facing some financial setbacks, issuing NCDs is a common method to raise capital during times when additional funds are needed for strategic expansion or stabilization. This move may signal that the company is taking proactive steps to strengthen its financial position in the face of short-term challenges.

Should You Consider Investing in These NCDs?

When evaluating whether to invest in these NCDs, it’s essential to look at both the potential returns and the risks involved. On the one hand, the 2% over the base rate coupon makes these NCDs an attractive option for those seeking fixed returns. Furthermore, the fact that they are secured and listed on the BSE enhances their credibility and provides investors with liquidity options.

However, investors should carefully consider the company’s recent financial performance. The significant loss reported in Q2 FY25 and the decline in total income may be seen as red flags by some. While these figures could suggest challenges in the short term, the company’s solid market presence and diverse range of services offer some reassurance.

Liquidity and Flexibility: A Major Advantage

One of the standout features of this NCD offering is the liquidity provided by the listing on the Bombay Stock Exchange. This is a key factor for many investors who prefer fixed-income investments but also value the ability to access their funds earlier if necessary. The ability to trade NCDs on the BSE provides a level of flexibility that can be highly beneficial, especially if market conditions change or personal financial needs shift.

Final Thoughts on This NCD Offering

Investors looking for a fixed-income investment with competitive returns may find this NCD offering worth exploring. The 2% above the base rate coupon rate, along with the security and BSE listing, presents an attractive proposition. However, potential investors should also consider the company’s recent financial performance and assess whether the risks involved align with their investment goals. If you are comfortable with some degree of risk and are looking for stable returns, this NCD could be a worthwhile addition to your investment portfolio.