Sakthi Finance Limited April 2023 NCD Public Issue Review

6 min read • Updated 28 April 2023
Written by Anshul Gupta

About the Issue

Sakthi Finance Limited has launched its public issue of NCDs to raise funds from the debt market. Read further to know more about the business of Sakthi Finance Limited.

IssuerSakthi Finance Limited
Type of InstrumentRated, Secured, Redeemable, Non-Convertible Debentures
Issue Size (Tranche I)Rs. 100 crs (Base Issue) + Rs. 100 crs (Over Subscription)
Face ValueRs. 1,000
Tenure24 months to 85 months across Series I-IX
Yield9% to 14.30% across Series I-IX
Application sizeMinimum 10 NCDs and in multiples of 1 NCD thereafter
Security CoverMinimum 100% security cover or higher on the principal outstanding plus interest thereon
Credit RatingICRA BBB/Stable
Issue Open Date17-Apr-23
Issue Close Date28-Apr-23

The principal terms of each option of NCDs are set out below:

 

Series 1

Series 2

Series 3

Series 4

Series 5

Series 6

Series 7

Series 8

Series 9

Frequency of Interest Payment

Monthly

Cumulative

Monthly

Cumulative

Monthly

Cumulative

Monthly

Cumulative

Cumulative

Nature of Instruments

Secured NCDs

Tenor

24 Months

24 Months

36 Months

36 Months

48 Months

48 Months

60 Months

60 Months

85 Months

Coupon (% per Annum)

9%

NA

9.25%

NA

9.50%

NA

10.25%

NA

NA

Effective Yield (% per Annum)

9%

9.74%

9.25%

10.52%

9.50%

11.40%

10.25%

13.17%

14.30%

Amount on Maturity (Rs.)

1000

1194.83

1000

1315.66

1000

1455.8

1000

1658.72

2013.13

While here you can earn up to 9% for 24 months tenure, in the secondary market for higher rated bond you can earn a higher yield of 10% for a similar tenure of 24 months. For more details, check out our asset page.

About Sakthi Finance Limited:

Sakthi Finance Limited (“SAKTHIFIN”) was incorporated in the year 1955. The Pollachi based company, promoted by Dr. N Mahalingam was started with the intent of catering to hire purchase requirements of the TELCO dealerships of the Sakthi Group. SAKTHIFIN headquartered in the South Indian state of Tamil Nadu is a deposit taking “Middle Layer NBFC” (NBFC-ML) that has a track record of nearly six decades in financing commercial vehicles and construction equipment. The company has a presence of more than 51 branches in the Southern states of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Telangana.

On a standalone basis, SAKTHFIN has an AUM of Rs. 1,160 crs as of December 2022. For the year ended March 2022, the income from hire purchase business constituted about 95.61% of operating income. The hire purchase business has grown by 8.34% from FY 2020 to FY 2022.


About Sakthi Group:

Sakthi Group is a popular name in Southern India that has multifarious business activities including Sugar, SG Iron foundry, Industrial Alcohol, Textiles, Transport, Finance, Dairy, Coffee Estates and Soya processing. It is a USD 2 billion industrial conglomerate and one of the fastest growing business groups in South India with a strong market presence in several Industrial Domains with a host of group companies, institutions, trusts and foundations operating under its umbrella.

Commercial Vehicle and Construction Equipment Industry:

The Indian commercial vehicle (CV) industry registered a healthy YoY growth of 39% in wholesale dispatches in Q2 FY2023, supported by replacement demand, improvement in the macroeconomic environment and healthy traction in the underlying industries. 

New CV loan book for NBFCs is estimated to have increased by 4.5% YoY in Q1 FY2023, while the used CV AUM grew by about 10%. Used CV AUM growth remained largely range-bound at 9-11% over the last eight quarters. The overall CV AUM grew by 7.5% YoY in Q1 FY2023, driven by the improvement in the new CV segment, resulting in the best growth rate witnessed over the past 10 quarters. Overall, the CV AUM stood at Rs. 2.31 trillion as of June 30, 2022.ICRA, a leading credit rating agency, expects the CV industry volumes to grow 18-20% in FY2023 and 7-10% in FY2024, driven by steady freight demand and economic recovery, the Government’s focus on infra spending, boom in e commerce as well as the replacement demand. However, inflation concerns, driven by the hike in interest rates and the continued high fuel prices and their impact on the viability of fleet operators, would need to be monitored.

Along with CV industry, as per ICRA the Mining and Construction Equipment (MCE) industry will witness a ramp-up in volumes from FY2023, supported by infrastructure spending by the government prior to the elections 2024. The orderbook remains robust and is expected to translate into healthy MCE demand in the coming quarters. Overall, MCE sales volumes are expected to grow by 10-12% YoY in FY2023.

Company Financials (Standalone):

Particulars9mFY23FY22FY21FY20
Net Worth (₹ in Cr)177.63170.95164.89158.29
Borrowings (₹ in Cr)1087.921066.231042.771026.55
AUM (₹ in Cr)1197.001103.111093.541070.46
PAT (₹ in Cr)9.049.529.2611.18
PAT Margin6.45%6.33%5.40%6.57%
GNPA6.15%5.18%4.95%5.13%
NNPA3.11%2.14%2.30%2.81%
Debt to Equity6.126.226.226.38
CRAR19.07%21.66%22.52%21.91%
Tier I Capital13.25%13.74%13.05%12.88%
Tier II Capital5.82%7.92%9.47%9.03%

The company’s leverage is high at 6.12x as of December 2022 resulting in a low CRAR of 19.07% relative to peers. As per the offer details, the post issue leverage is expected to increase further to 7.25x. Consequently, the CRAR will decrease further, and it will be important to monitor if the company maintains CRAR above the regulatory level of 15%. The AUM has seen a modest growth of 10% since FY21. The company has been reporting profits since FY20, however it has been depicting a declining trend which remains a concern. The GNPA has risen to 6.15% as of December 2022 which shows worsening asset quality.

Top Ten Equity Shareholders of the company as on December 2022:

Sr NoName of shareholder% Shareholding
1Sakthifinance Financial Services Limited19.19
2ABT Investments (India) Private Limited13.49
3Sakthi FinancialServices (Cochin) Private Limited11.06
4Avdhoot Finance and Investment Private Limited8.69
5Bridgewater Investment Corporation Limited6.88
6Sakthi Management Services (Coimbatore) Limited6.70
7The Gounder and Company Auto Limited6.07
8ABT Finance Limited5.15
9ABT Foundation Limited3.83
10Sakthi Realty Holdings Limited3.83
 Total84.89

The promoter and promoter group holds 67% of the total shares. Of the remaining 33%, majority is held by the following companies: Avdhoot Finance, Bridgewater Investment and Sakthi Management Services, who are also part of the top ten shareholders.

Borrowings (as of December 2022):

Nature of BorrowingsAmount (₹ in Cr) %
Secured639.74 59%
Unsecured448.1841%
Total1,087.92100.00%

Peer Comparison (December 2022):

ParticularsSakthi Finance LimitedS K FinanceKogta Financial Limited
AUM (₹ in Cr)1,1976,7162,624
GNPA6.15%4.58%3.85%
NNPA3.11%3.51%2.68%
Net Worth (₹ in Cr)177.631,741.571,085.44
Debt to Equity6.123.682.04
PAT (₹ in Cr)9.04138.8946.79
PAT margin6.45%14.97%13.08%
CRAR19.09%27.12%37.35%
Rating AgencySakthi Finance LimitedS K FinanceKogta Financial Limited
CRISILNot RatedA+/StableNot Rated
ICRABBB/StableA+/PositiveA/Stable
CARENot RatedA+/PositiveAA (CE)/Stable

Conclusion

Comforts:

  • Vintage of nearly six decades in the commercial vehicle finance segment.
  • The company has reported profits consistently.

Concerns:

  • High leverage of 6.12x as of December and post issue leverage of 7.25x.
  • Business is concentrated in Tamil Nadu and Kerala which accounts for 96% of the total portfolio.
  • Moderate asset quality indicated by GNPA of 6.15% relative to peers. 
  • Modest growth in AUM since FY20.
  • More than 80% of the funding is from NCDs, indicating high dependence on NCDs.
  • Low size of operations compared to peers despite high vintage in business.
  • Multiple instances of default by group companies in the past.

Was this helpful?

Anshul Gupta

Co-Founder
IIT Roorkee Alumnus and CFA with experience of structuring debt products worth more than 15000Cr for institutional and retail investors.

Popular Articles

Sovereign Gold Bond 2023-24: Series 4; Check Price, Issue Dates, and More.
Sovereign Gold Bond 2023-24: Series 4; Check Price, Issue Dates, and More.
  • 12 min read
  • 15 June 2023
What Are Gold BeES and How Do They Work?
What Are Gold BeES and How Do They Work?
  • 6 min read
  • 12 January 2023
Difference between Visa Classic, Platinum, Signature and Infinite Cards
Difference between Visa Classic, Platinum, Signature and Infinite Cards
  • 6 min read
  • 29 March 2023
How to File a Complaint with the Banking Ombudsman: A Step-by-Step Guide
How to File a Complaint with the Banking Ombudsman: A Step-by-Step Guide
  • 12 min read
  • 28 February 2023
How to Check Mutual Fund Status with Folio Number
How to Check Your Mutual Fund Status with a Folio Number?
  • 6 min read
  • 6 December 2022

Recent Articles

NPS Withdrawal Online: Rules, Process, Taxation & Exceptions
NPS Withdrawal Online: Rules, Process, Taxation & Exceptions
  • 9 min read
  • 31 January 2024
Understand Exempt-Exempt-Exempt (EEE) In Income Tax In India
Understand Exempt-Exempt-Exempt (EEE) In Income Tax In India
  • 4 min read
  • 31 January 2024
Electoral Bonds: Meaning, Price, and Eligibility
Electoral Bonds: Meaning, Price, and Eligibility
  • 8 min read
  • 29 January 2024
Interim Budget: How Is It Different From a Union Budget
Interim Budget: How Is It Different From a Union Budget
  • 4 min read
  • 29 January 2024
What Is Tax Evasion, Tax Avoidance, and Tax Planning?
What Is Tax Evasion, Tax Avoidance, and Tax Planning?
  • 5 min read
  • 25 January 2024