Manappuram Home Finance has hit the market today with secured Non-Convertible Debentures (NCDs) offering up to 10.65% in interest (called coupon). The issue has a base size of ₹100 crore and the company can retain up to another ₹100 crore in case of oversubscription. The issue opens today (30 September 30) and closes on 29 October 29. The minimum investment is ₹10,000. The NCDs have been rated AA- by CARE Ratings.
The NCDs are being issued for tenors of 36 months, 60 months and 2,500 days (roughly seven years) at coupons ranging from 9.75% to 10.65%. The coupons fluctuate according to the tenor and whether you opt for monthly, annual or cumulative payments. Interest on NCDs is taxed at your slab rate. However, Tax Deducted at Source (TDS) is not cut for NCDs held in demat form such as the current issue.
Manappuram Home Finance is a 100% subsidiary of Manappuram Finance Ltd. The company was purchased by the Mannapuram group from Jaypee Hotels in 2014 and was formerly known as Milestone Home Finance. The company predominantly gives out housing loans with an average ticket size of ₹10.15 lakh and Loans Against Property with an average ticket size of ₹7.22 lakh. It has Assets under Management (AUM) of ₹518.75 crore (as of 31st March 2019).
Manappuram Home Finance had a net worth of ₹92.58 crore at the end of FY18. It has gross NPAs of around ₹20 crore. It incurred losses for FY15, 16, 17 and 18 before moving to a profit after tax of ₹3.02 crore for the fiscal 2019. As of March 31, 2019, it had gross NPAs as a percentage of AUM at 3.85%. This was marginally lower than the 4.77% recorded in March 18 but still much higher than the 1.49% recorded as of March 31st 2017. Net NPAs, as a percentage of AUM stood at 3.05% in March 2019. The company also had negative cash flows of ₹184 crore, 47 crore and ₹143 crore in FY17, 18 and 19 respectively.
Should you invest?
There are many alarm bells in this NCD issue. Manappuram Home Finance has only just turned profitable after several years of losses. It has had negative cash flows for several years. On the other hand, the NCDs are for up to ₹200 crore, a small amount compared to the market capitalization of Manappuram Finance Limited (the parent company) of around ₹12,000 crore. However, that is no iron-clad guarantee. The parent is not obligated to honor the NCDs of its subsidiary and may sell off the subsidiary before your NCD matures. The rating of AA- is also on the risky side. This is an NCD issue best avoided. If you really are willing to take a heavy amount of risk, pick the lowest tenor (36 months) and monthly coupon to mitigate your potential downside.[“source=livemint”]