JM Financial Credit Solutions non convertible debentureJM Financial Products Ltd has come out with a Non-Convertible Debenture (NCD) offering an annual yield of 10.21% to 10.4% (the interest rate ranges from 9.85% to 10.30%). The offering, which was launched on August 6, is slated to close on September 4 but could close early if the response is good.

JM Financial Products Ltd (JMFPL) is a Systemically Important Non – Deposit Taking NBFC (NBFCND-SI) and operates as the flagship company under the “JM Financial” brand. Incorporated as J.M. Lease Consultants Private Limited on July 10, 1984, the company has broadened its services from lease syndication and vehicle leasing to structured financing, real estate financing, capital market financing, and SME financing.

You would recall that the company had in April this year come out with its first public NCD issue, where it offered 9.89% to 10.51% annual yield. Should you invest in the latest tranche of NCDs? RupeeIQ explains.

NCD issue details

Total issue size – Rs 500 crore including oversubscription of up to Rs 400 crore

Issue Price and Face Value per NCD – Rs 1,000

Minimum Application – Rs 10,000 (10 NCDs) collectively across all series and in multiples of Rs 1,000 (1 NCD) thereafter across all series.

Application route – Only through ASBA route

Additional Incentive – For Senior Citizens (above 60 years of age): 0.10% p.a. for Resident Indian Individuals forming part of Category III (HNI other than HUF) and Category IV (Retail Individual Investors other than HUF). The amount payable on redemption for NCDs issued under Series II and V is Rs 1,364.45 and Rs 2,012.70 per NCD respectively. The incentive is not applicable for secondary market purchases.

Issuance /Allotment – Compulsory Demat / First Come First Serve Basis

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NCD tenure and maturity

The interest rate depends on the tenure and frequency of interest payment. The debentures offered by JM Financial Products in this latest issue come in the form of 3 tenures – 38 months, 60 months and 84 months.

If you want the frequency of interest payment to be annual, then you have 2 tenure choices – 38 months and 60 months.

If you want the frequency of interest payment to be monthly, you have 1 tenure choice – 60 months.

There are 2 tenures choices if you want the cumulative option (i.e. interest and principal money is paid in one go) – opt for either 38 months tenure or 84 months tenure. This means a Rs 1,000 NCD at the end of 38 months will fetch you Rs 1,360.54 while a Rs 1,000 NCD at the end of 84 months will fetch you Rs 2,000.

Take a look at interest rates offered below as per choice.

JM Financial NCDs

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5 Factors to decide if this NCD is good for you

1. What is JM Financial Products and what is its business – The company is part of the JM Financial Group. It operates in four verticals to suit the needs of corporates, SMEs and individuals: Structured financing, Real Estate financing, Capital market financing, and SME financing. It has also ventured into real estate broking business under the brand name “Dwello”. Additionally, it provides home loans to retail customers with a focus on affordable housing segment through subsidiary JMFHL (registered with National Housing Bank). JM Financial Products has a net worth of Rs. 1,560.3 crore as on FY19 end. On an annual revenue of Rs 949 crore, it reported a profit after tax of Rs 204 crore.

2. What are the business segments to be monitored – When you buy an NCD, you become a lender to the company. Hence, it is your duty to look at all areas of the business and monitor segments that could in future pose problems. We do not wish JM Financial Products faces any problem. But, as an investor, you will need to be vigilant given the fluid state of markets. About 41% of the company’s loans are given for structured financing ie. structured lending, promoter financing, acquisition financing, mezzanine financing and debt syndication. This is less of a problem. According to us, the key monitorable is the health of loans given under real estate and capital market financing segments. These two account for 52% of the loan book. Capital markets are not in good shape, given the state of the economy. Real estate markets have also shown great fragility, with many investors and funds failing to get real estate developers to pay on time.

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3. What is the call option in this NCD – In a call option NCD, the power of redeeming the NCD resides with issuers as they can withdraw anytime before maturity. As per JM Financial Products, the call may be applicable in Series III and IV anytime after 36 months from deemed date of allotment. The Call price for Series III and IV shall be the Face Value per Secured NCD plus the effective yield computed at 10.29% p.a. and 10.30% computed from the deemed date of allotment up to one day prior to the date of exercise of the Call. Think of this call option as a premature exit option.

4. Are the NCDs secured – NCD can be secured or unsecured. Secured NCDs are backed by the issuer company’s assets to fulfill the debt obligation. This Tranche II issue is for secured NCDs.

5. Is the company growing – If a company does not grow, then it will eventually find it difficult to repay and service debt. On this count, there are some concerns. JM Financial Products had a loan book of Rs 5,226 crore as on March 31, 2019, which is about 20% lower compared to Rs 6,582 crore as on March 31, 2018. The drop in loan book is mildly worrying. Secondly, the company reported a net profit of Rs 204 crore in FY19 compared to net profit of Rs 213 crore in FY18. So, profitability has also remained stagnant. We hope this is a passing phase in the company because any stagnancy/decline in profits and loan book are not good signals.

RupeeIQ take

We remain concerned with the company’s real estate and capital market financing loan exposure. Though asset quality i.e. Gross and Net NPA (%) have not worsened, the 20% drop in loan book growth in FY19 and stagnant profit in FY19 does not add any comfort.

The wholesale lending business is not as easy as the retail lending part. For JM Financial Products, running the wholesale business amid the current environment of continued economic slowdown will be a good test. If the company is able to navigate these choppy waters thanks to its underwriting norms, adequate risk management systems, and proactive monitoring and resolution process, then it will be good.

Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at