JM Financial Products Limited, an NBFC, has launched a Rs 1,000 crore Non-Convertible Debentures (NCD) issue from April 22. The issue is scheduled to close on May 21, 2019 with an option of early closure or extension. The secured NCDs, rated double A (AA) by external agencies, offer an interest of 9.90% to 10.50% per annum. Anybody wanting to buy these NCDs must know that backing JM Financial Products is a direct play on its parent, JM Financial Group. The NCD issuer company is the capital markets lending arm of the JM Financial Group. Although individually JM Financial Products Limited has come out with the offering, it is the group that is the face of the issue. Read on to know RupeeIQ’s take.
JM Financial Products’ NCDs have a face value of Rs. 1,000 each. The base issue size is of Rs 200 crore with an option to retain oversubscription up to Rs 800 crore aggregating upto Rs. 1,000 crore.
The minimum application amount is Rs 10,000 collectively across all series on NCDs and in multiples of 1 NCD of face value of Rs 1,000 each after the minimum application.
Allotment is on a first-come-first-serve basis (except on the date of oversubscription, if any, when all the investors applying on the said date will get allotment on a proportionate basis). Investors have to apply for NCDs only in dematerialised form.
Ratings – CRISIL has assigned its ‘CRISIL AA/Stable’ ratings on Rs 2,000 crore Non-Convertible Debenture issue of JM Financial Products Limited (JM Financial Products; part of the JM Financial group) and has reaffirmed its ratings on the company’s other debt instruments and bank facilities at ‘CRISIL AA/Stable/CRISIL A1+’. The Rs 2,000 crore NCD amount/figure comes under the shelf limit of money that can be raised. Similarly, ICRA has rated the NCDs as AA/STABLE for an amount of upto Rs 2,000 crore.
Interest rates offered
In Series I, interest will be paid on an annual basis at a rate of 9.90%; and the tenor is 24 months. The Effective Yield (per annum) is 9.89%.
In Series II, the tenor is 24 months and the redemption amount per NCD is Rs. 1,208.11. The Effective Yield (per annum) is 9.90%.
In Series III, interest will be paid on an annual basis at a rate of 10.20% and the tenor is 36 months. The Effective Yield (per annum) is 10.19%. Call can be exercised any time after 24 months from the deemed date of allotment.
In Series IV, the tenor is 36 months and the redemption amount per NCD is Rs. 1,338.63. The Effective Yield (per annum) is 10.20%. Call can be exercised any time after 24 months from the deemed date of allotment. In case the call is exercised, the redemption amount shall be computed to include an effective yield at 10.20% p.a. from the deemed date of allotment till one day prior to the date of exercise of call.
In Series V, interest will be paid on a monthly basis at a rate of 10.04% and the tenor is 60 months. The Effective Yield (per annum) is 10.51%. Call can be exercised any time after 36 months from the deemed date of allotment.
In Series VI, interest will be paid on an annual basis at a rate of 10.50% and the tenor is 60 months. The Effective Yield (per annum) is 10.49%. Call can be exercised any time after 36 months from the deemed date of allotment.
The NCDs are proposed to be listed on BSE Limited.
JM Financial Products is the capital markets lending arm of the group. The company was earlier engaged in public issue financing, lending against securities, margin funding, corporate lending, sponsor and promoter funding and real estate lending. It will now be focusing mainly on corporate lending going ahead. This is because other NBFCs of the group i.e. JM Financial Capital Limited and JM Financial Credit Solutions Limited will be focusing on capital market lending and real estate lending, respectively.
JM Financial Products reported a net profit of Rs 213 crore on a total income base of Rs 904 crore in FY2018 vis-a-vis a net profit of Rs 197 crore on a total income base of Rs 706 crore in FY2017. In 9M FY2019, the company reported a net profit of Rs 158 crore on a total income base of Rs 730 crore.
JM Financial Products is focused on offering a broad suite of secured and unsecured loan products. The company broadly operates under four verticals viz. (i) fixed income division (structured financing) (ii) fixed income division (real estate financing) (iii) capital market financing and (iv) SME financing.
In addition to the above, it has ventured into real estate broking business under the brand name “Dwello”. Through Dwello, it operates primarily in the residential real estate segment and assists buyers during all the stages of their real estate buying cycle. It has also entered the housing finance business through Subsidiary, JMFHL.
JM Financial Products’s loan book stood at Rs 6,693.4 crore as of December 31, 2018. The company’s Gross NPA as of December 31, 2018 stood at 0.3% of loan book.
Why Parent Is Important
JM Financial Products has extremely close links with parent group. There are common promoters and senior management team, shared brand name, and strong financial and operational synergies.
You can expect financial, managerial and operational support from the JM Financial Group for all key group companies.
Vishal Kampani, Managing Director, JM Financial Products Limited, (also Group MD, JM Financial Group), says, “The Company has a diversified product mix, strong credit profile and a robust track record of growth and profitability. The robust lending book profile is reflected in growth, asset quality and returns. We shall continue to focus on risk adjusted profitability and sustainable growth. Our public issue of NCDs will enable us to further diversify our funding sources.”
RupeeIQ take – Wholesale lending business of JM Financial Products is the only thing that concerns us. This is because of the corporate lending profile and large ticket size of loans. However, we expect JM Financial group to use strong risk management practices even as it significantly increases scale in the wholesale lending business through JM Financial Products Ltd. This is a double A (AA) rated NCD, just like the previous NCD issue of JM Financial Credit Solutions. We expect investors to fully understand the corporate lending business before subscribing to the NCD offer. Do not make the decision merely based on the interest rate. The JM Financial Group has shown the ability to manage its asset and liability profile. It has also been able to raise funds when it wants. As the scale up in lending business happens, one would expect the group and its companies to become more focussed.
Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.