Tata Capital Financial Services, a Tata group company with the ultimate parent being Tata Sons, is launching a public issue of secured and unsecured redeemable non-convertible debentures (NCDs) that will offer annual interest of 8.35% to 8.85%. The offering will open on August 13, 2019 and is slated for scheduled closure on August 23, 2019.
The triple A (AAA) rated debenture issue, which seeks to raise up to Rs 4,126 crore, is an ideal bet for conservative investors who want a play on the strong parentage and brand equity associated with Tata Group, integrated financial services platform and diversified business mix that comes with Tata Capital Financial Services.
Tata is coming with a lower coupon rate (of 8.85%) at a time when there are two ongoing NCD issues of JM Financial Solutions and India Infoline Finance offering around 10% interest per annum. NCD returns are a function of rating and risk. This means any extra return comes with extra risk. The Tatas have a brand and trust built over a hundred years, and corporate governance and ethics are intrinsic to the way its companies conduct business. Besides, despite a harrowing time for NBFC sector, Tata Capital has remained rock-solid and has maintained a unblemished track-record in terms of prioritising stakeholder interest. Read on to know more.
Issuer – Tata Capital Financial Services Limited
Issue Size – Rs 500 crore. Option to retain oversubscription amount up to Rs 3,626 crore
Rating – “AAA” Stable by CRISIL & CARE
Minimum application – Rs 10,000 ( 10 NCDs) and in multiple of Rs 1,000 (1 NCD) thereafter across all series.
Mode of Allotment – NCDs will be issued and traded compulsorily in dematerialised (demat) form.
Face Value – Rs 1,000
Listing – NCDs are proposed to be listed on BSE and NSE
Mode of application – Mandatory ASBA
About the business
Tata Capital Financial Services Limited is a Tata group company. Majority of the stake in the company is owned by Tata Sons through Tata Capital Limited.
Tata Capital Financial Services is one of the leading non-deposit taking non-banking financial companies. It offers consumer loans such as auto loans, business loans, loans against property (LAP), personal loans, consumer durable loans and loans against securities (LAS) as well as wealth management. The company is also into commercial financing to SMEs like term loans, working capital term loans, channel finance, bill discounting, construction equipment finance, leasing solutions, lease rental discounting, promoter finance and structured products.
Tata Capital Financial Services is profitable with total income and profit after tax for the year ended March 31, 2019, at Rs 5,585 crore and Rs 433 crore respectively. The loan outstanding of the company stood at more than Rs 44,000 crore as on March 31, 2019, an increase of 21% compared to March 31, 2018. The growth rate of 21% should be seen in the context of JM Financial Products’s 20% drop in loan book and India Infoline Finance’s 22% decline in loan book at the same time.
Also, Tata Capital Financial Services has shown the ability to grow responsibly. It’s Gross Non Performing Assets (GNPAs) and Net Non Performing Assets (NNPAs) as a percentage of the total loan and advances outstanding was 2.45% and 0.39%, respectively as of March 31, 2019, an improvement to Gross NPA of 3.31% and NNPA 0.44% as on March 31, 2018. It has thus so far been able to manage asset quality pressure and recover from vulnerable accounts. In comparison, India Infoline Finance’s (standalone) gross NPA at the end of March 2019 was 3.3% (higher than 2.54% a year ago) and net NPA was 0.68%.
From a diversified business mix perspective, Tata Capital Financial Services, with its over Rs 44,000 crore loan book, seems better placed than many peers. For instance, the company’s aggregated exposure to top 20 borrowers with respect to the concentration of advances as on March 31, 2019, was 10.31% compared to over 53% for JM Financial Products and over 25% for India Infoline Finance.
Tata brand, parentage
Tata Sons owns 94.23% of Tata Capital Limited (TCL), which holds 100% stake in Tata Capital Financial Services. Tata group is sharply focussing on growing the financial services business. As such, Tata Capital Financial Services occupies a strategic edge in the mind space of Tata group. One of the biggest advantages of this is that Tata Capital Financial Services is capable of raising money at a lower cost compared to other NBFCs.
Apart from the financial edge of being part of the Tata group, there are qualitative factors at play. The Tata group is no ordinary business group. Right from its management structure to the way it conducts various businesses, strong ethics guide the way the group has treated minority stakeholders. Tata Capital Financial Services is in a position to enjoy managerial support from Tata Sons when required. The company’s current management is headed by MD Kusal Roy, a former executive director of ICICI Bank where he is credited for his contribution to the growth of the retail banking and real estate & housing finance market. Tata Capital is headed by former ICICI Bank number two Rajiv Sabharwal.
NCD offering interest
In its previous public NCD issue, Tata Capital Financial Services offered category III and IV (HNIs and retail investors) three choices between 8.8%, 8.9% and 9.1% interest rates.
In the latest offering, the company offers four choices – 8.45%, 8.50%, 8.65% (the first three options are secured NCDs) and 8.85% as the fourth option, which offers the highest interest (unsecured NCD).
Take a look at the interest rate structure below:
The harsh truth is that the NBFC sector is going through a transition phase. Weaklings are feeling the heat, while the companies that have deep pockets and ability to raise low cost capital will deserve a premium. From a fixed income perspective, you have to make a decision whether you want ‘yield’ or ‘safety’. In the long-term, losing less is actually winning more and hence go for safety.
As the overall economic situation continues to remain challenging, we have seen how hitherto established firms, from all walks of life, including Dewan Housing Finance Ltd (DHFL), Cox & Kings, and Talwalkar group firms, apart from IL&FS group entities, have struggled to repay loans and interest. At this time, safety should be accorded a higher priority if you are building an all-weather fixed income portfolio that will give better than bank FD returns with slightly more risk.
Hence, Tata Capital Financial Services with its stainless record of repayments, sustainable business growth, Tata group parentage, and demonstrated ability to control bad loans is a better bet than many. So investors may choose the secured Tata Capital Financial Services’ NCDs options, if they want a higher degree of safety.
Disclaimer: Views expressed here in this article are for general information and reading purpose only. They do not constitute any guidelines or recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide/investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument.