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Sovereign Gold Bonds: Your Golden Ticket? Sept-23

Sovereign Gold Bonds: Your Golden Ticket? Sept-23

As per the World Gold Council if an investor in India had their investment in Gold from December 1980, 2000, or 2015, and remained invested until 2022, that person would have earned annualized returns of 8.64%, 11.84%, and 11.43%, respectively.
India, being the world’s largest importer of gold, places significant pressure on the current account due to its gold imports. To alleviate this pressure on the current account, the Government of India introduced sovereign gold bonds.
(SGB) Sovereign Gold Bonds series-2 are investment instruments, rated sovereign and thus that carry no credit risk and offer an interest with the capital appreciation. Investors in these bonds receive a guaranteed 2.5% interest per annum on their investment, paid semi-annually. What makes these bonds even more attractive is the exemption from capital gains tax for investors who hold them from the primary issue until maturity.

Here are some key features of Sovereign Gold Bonds:

Duration: The bonds have a fixed tenure of 8 years, with an exit option available after the 5th year from the date of issue.

Maximum Bid Quantity: Individuals and Hindu Undivided Families (HUFs) can bid for up to 4 kg, while trusts have an allocation of up to 20 kg.

Discount for Digital Transactions: The Government of India, in collaboration with the Reserve Bank, offers a discount of ₹50/- per gram less than the nominal value to investors who apply online and make the payment through digital modes.

Being listed on the stock exchanges, this provides ample liquidity to the investors. One can also use these bonds as collateral against loans.
SGBs not only provide a safe and convenient way to invest in gold but also offer attractive interest rates and tax benefits. For investors looking to diversify their portfolios and reduce the reliance on physical gold holdings, these bonds present a compelling opportunity.
It’s essential to consult with financial advisors or experts before making any investment decisions to ensure they align with your financial goals and risk tolerance.

 Disclaimer:
"Investment in debt instruments carry inherent risks, these are our opinions and we
advise prudence while taking any investment decision"
PIRAMAL CAPITAL & HOUSING FINANCE LTD Aug-23

PIRAMAL CAPITAL & HOUSING FINANCE LTD Aug-23

Overview:

  • The company maintains a low debt equity ratio of 2.6, with a recorded ratio of 1.74 in the previous year.
  • Wholly owned subsidiary of Piramal Enterprises Limited
  • It has been rated AA by care ratings.
  • The company exhibits a high capital adequacy ratio of 27%, which was 22.3% in the last year.
  • GNPA stood at 3.5% for the year, while it was 2.3% in the preceding year.
  • The company experienced negative profit due to a significant amount of goodwill being written off. However, it achieved a positive return on equity of 2.5% and 13% in the two years before that.
  • There has been relative stability in financials since the acquisition of Dewan Housing Finance Ltd. in January 2021.

 

Details

This wholly-owned subsidiary of Piramal Enterprises Ltd is registered as a housing finance company with the National Housing Bank (NHB). It is engaged in various financial services businesses. The lending portfolio of PCHFL has predominantly been wholesale, with a high concentration on the real estate segment.

The latest available yields while writing this on PCHFL’s securities are 8.75% for the one maturing in May-26 and 200 basis points higher (one basis point is 0.01%) for the one maturing in Sep-31. With a fall of 3% in AUM (Assets Under Management), the Gross Non-Performing Assets (GNPA) is 3.5%. Taking a lagging denominator to remove the effect of this year’s loans becomes 3.4%, which is a credit-positive.

With a very low debt-to-equity ratio of 2.6 and 1.74 during the year preceding this, the short-term risks associated with financial leverage can be ruled off. Being a wholly-owned subsidiary, the strong parental support is again, a credit positive. PCHFL maintains a high Capital Adequacy Ratio of 27% and 22.03%, which is very high compared to the minimum requirement by the RBI of 15%.

Conclusion
The longer-term yields do look attractive, but due to the recent amalgamation with Dewan Housing Finance Ltd and the historical record of high debt equity ratio (before the merger) of an average of 10.6, it can become a cause of concern when considering the security maturing in 2031. The shorter duration paper is an almost perfect fit in the high-yielding part of a diversified debt portfolio.

 Disclaimer:
"Investment in debt instruments carry inherent risks, these are our opinions and we
advise prudence while taking any investment decision"
VIVRITI CAPITAL Aug-23

VIVRITI CAPITAL Aug-23

Overview:

  • “A” rating with a positive outlook from CARE and a stable outlook from ICRA.
  • Lending predominantly to Mid-Large Corporates with an average ticket size of 3.5 Crores.
  • Low Debt/Equity ratio of 2.76.
  • Gross Non-Performing assets near 0.5%.
  • Capital Adequacy ratio of 25% Return on Equity almost 9%.
  • High competition in the NBFC sector and no strong parental backing.

 

Details for Vivriti Capital’s new Issue
Issue opens on 18th August 2023 and closes on 31st august 2023
These NCDs are secured and will be listed on the exchanges to provide liquidity
The face value is Rs. 1000

Edit
Series I II III IV V
Frequency of Interest payment Monthly Annual Quarterly Monthly Annual
Duration (In Months) 18 18 24 24 24
Coupon rate 9.57% 10% 9.65% 10.03% 10.50%
Yield to Maturity (YTM) 9.98% 10.06% 9.98% 10.49% 10.48%
Principal repayment On Maturity On Maturity Rs 125 per Quarter On Maturity On Maturity
Face Value 1000 1000 1000 1000 1000

 

Detailed Analysis:

Vivriti Capital’s Capital Adequacy ratio exceeds 25%, considerably higher than the required mandate of 15% by the RBI highlighting its robust capital position. This ratio, calculated as the proportion of Equity Capital to Risk Weighted Assets, showcasing the company’s ability to absorb unexpected losses.

Diving into the specifics of its operations, Vivriti Capital focuses lending with an average tenor of two years, with interest rates ranging around 14% (+/- 2%). In terms of borrowing, Vivriti Capital maintains an average borrowing rate of 9.98%-10.49% over a two-year tenor. This approach emphasizes stability and minimizes potential risks associated with Asset Liability Mismatch (ALM).

A key risk mitigation strategy employed by Vivriti Capital is its preference for secured lending, often involving pledging shares, asset hypothecation, or utilizing escrow accounts. This approach shields the company from excessive credit risk, contributing to its capability to maintain a lower GNPA over the long term.

When considering asset quality, Vivriti Capital upholds an impressively low level of Gross Non-Performing Assets (GNPA), standing at around 0.5%. This can be further analysed using a lagging denominator, which takes into account the previous year’s book value/AUM to offset the impact of the 53% growth in book size.

Despite low interest rate risk due to average period of lending being two years, Vivriti Capital strategically manages this risk by keeping 60% of its loan book at floating interest rates.

Prudence is advised in light of intense competition within the NBFC sector, coupled with Vivriti Capital’s absence of parental support.
Additionally, the matter of a modest credit rating should also be considered.

Conclusion
In our opinion, after detailed analysis we suggest that vivriti capital should be a small part of a well-diversified debt portfolio, thus increasing overall returns while maintaining risk.

Disclaimer:
"Investment in debt instruments carry inherent risks, these are our opinions and we
 advise prudence while taking any investment decision"
CREDIT ACCESS GRAMEEN LIMITED Aug-23

CREDIT ACCESS GRAMEEN LIMITED Aug-23

Overview:
  • Largest listed microfinance company with a vintage of 25 years
  • Gross Non-Performing assets (GNPA) at 1.29% and a Capital adequacy at 23.56%
  • Based on the Grameen model of Mohammad Yunus, with 99.99% lending to women
  • High return on equity of 17.97% and a relatively lower debt-equity ratio of 3.19
  • Structure of lending being largely unsecured, this does pose as a credit risk.

Latest issue’s details
Opens on August 24, 2023 and closes on September 6, 2023
Issue size is Rs. 400 crore with another 600cr as a green shoe option.
Eight options for cashflows mainly interest being paid monthly or on a cumulative basis.
Minimum application during the primary phase is Rs. 10,000 i.e. ten units of face value Rs.1000 each
Issue will be listed on the exchanges to provide liquidity
YTM being 9.48% to 10.13%

Detailed analysis:

One can be confident of a well calibrated/prudent approach from the management knowing that 66.77% of the equity share capital is owned by the promoter Credit Access India BV
A significant portion of the portfolio comprises microfinance loans to clients with below-average credit risk profiles and lack of access to formal credit. In spite of this, CAGL based on the Grameen model, is disbursing largely unsecured loans while keeping GNPA% low.
This is possible due to group-based loans where members ensure each other’s credit discipline.

CAGL has consistently maintained its Capital Adequacy Ratio, with percentages of 23.56%, 22.80%, and 26.80% from 2021, 2022, and 2023, respectively.

With a AA- rating from India ratings and a A1+ (Stable outlook) from CRISIL, CAGL follows a relatively safer NPA recognition process at 60 on non-repayment as compared to the industry standard of 90 days.
CAGL wont face an Asset Liability management issue as its average receivables are at 22 months while its average payments are at 18 months.

Regional concentration in CAGL’s loan portfolio remains high – with top 3 states (Karnataka, Tamil Nadu and Maharashtra) accounting for over 77% of the book size as on December 31, 2022.
One could feel content after seeing the high Return on equity number but this is a new occurrence for CAGL. Its Financial year 2022’s and 21’s Return on Equity was at 9% and 4% respectively.

Conclusion
Due to having a unique business model as compared to it’s peers. This investment will provide low internal correlation in the high yielding part of a debt portfolio.
With strong fundamentals and business’ financials, CAGL can be a part of a high yielding portion of a debt portfolio. One must keep vigilance, as predicting the creditworthiness of this company in the long term can be difficult.

Disclaimer:
"Investment in debt instruments carry inherent risks, these are our opinions and we
 advise prudence while taking any investment decision"