Indiabulls Housing Finance, on March 3, 2023, issued secured, redeemable, non-convertible debt (NCD) worth Rs 900 crore, with a coupon rate of 8.88 to 10.15 per cent per annum.
It is Tranch V of a series of issues to raise a total of Rs 1,400 crore primarily for onward lending, financing, and debt refinancing. As much as 25 per cent would be used for corporate purposes.
The base size is Rs 100 crore, with an oversubscription option of up to Rs 800 crore, aggregating to a total of Rs 900 crore. The public issue opens on Friday and closes on March 17, after which the NCDs will be listed on BSE and NSE, where they can be sold.
NCD Interest and Tenure
The highest rate of 10.15 percent is offered to retail investors who purchase 60-month tenure NCDs, in which interest is paid annually. The minimum application amount is Rs 10,000.
Indiabulls Housing NCDs have tenures of 24 months, 36 months, and 60 months across all categories of interest payments, such as monthly, quarterly, or cumulative interest payments at the time of maturity. For example, with the lowest tenure of 24 months, the interest rate is 9.65 per cent if you opt for yearly interest payments but 9.25 per cent if you choose monthly payments.
High-net-worth and retail investors already holding shares, NCDs, or company bonds are also eligible for an additional 0.25 per cent incentive per annum. They should be primary holders on the deemed date of allotment. However, investors who opt for interest payment only at maturity do not qualify for this incentive. But for them, the maturity amount at redemption and the additional yield would be Rs 1,208.20 per NCD or Rs 1,336.85 per NCD, respectively.
Should Investors Buy?
Even though this public issue of NCDs offers a higher interest rate than the rate provided by large banks for their fixed deposits, there is a moderate risk associated with investing. Indiabulls Housing Finance has an AA rating with a stable outlook from CRISIL and ICRA, which is fair but falls short of the AAA rating. This rating is based on a firm's ability to raise cash from its internal and external operations and its sustainability.
In FY2022, the company's total consolidated revenue from operations and consolidated profit decreased by 9.51 per cent and 1.98 per cent, respectively, compared to FY2021.
Inflationary expectations and monetary policies determine the cost of funding for the company and its loan products.
Says Indiabulls Housing Finance on risks associated with buying NCDs: "While any reduction in our cost of funds may be passed on to our customers, we may not have the same flexibility in passing on any increase in our cost of funds to our customers, thereby affecting our net interest income."
On the other hand, at the end of 2022, the interest coverage ratio is 150.66 percent. In addition, the company claims to have a security cover of 1.25 times over the principal and interest on the loan. A capital Adequacy Ratio of at least 15 per cent is considered safe; Indiabulls Housing Finance has a CAR of 22.49 percent.
Says Indiabulls Housing Finance: "The net profit margin of the company is 10.96 per cent".
The company had consolidated cash and cash equivalents of approximately Rs 3,716.81 crore at the end of December 2022, borrowings (other than debt securities) of about Rs 28,433.74 crore, and a loan book of approximately Rs 53,922.14 crore.
Having unsecured loans for more than 50 per cent of the company's assets is risky. The company's total assets are worth Rs 74,106 crore, and its NPA in the loan book is just Rs 2,318 crore. As of December 31, 2022, its consolidated gross NPAs as a percentage of its loan book was 4.27 per cent.
Finally, the uncertainty in global markets and higher interest rate may hit the company’s cash flow. Fixed-income investors willing to compromise on risk for higher returns may like to allocate some part of their fixed-income portfolio.