Kosamattam Fin July 2022 NCD issue review (Avoid)
• This is the 25th debt offer since April 2014 from KFL.
• Its last offer was in March-April 2022.
• Instrument rated as BWR BBB+/positive outlook by Brickwork Ratings, which is considered a bit risky.
• While it has poor ratings, it has also reduced the coupon rates for this issue.
• There is no harm in skipping this a bit risky debt offer at reduced rates.
Kosamattam Finance Ltd. (KFL) is a systemically important non-deposit taking NBFC primarily engaged in the Gold Loan business, lending money against the pledge of household Jewellery (“Gold Loans”) in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry. This is the 25th Debt offer from the company since April 2014. It is IRDA registered composite corporate insurance agent. Kosamattam also holds SEBI registration as a depository participant and FFMC to act as a money changer. KFL is also an AMFI registered mutual fund advisor and also holds registration from LEIL. The last offer was in the month of March-April 2022.
In addition to the core business of Gold Loan, KFL also offers fee-based ancillary services which include Microfinance, money transfer services, foreign currency exchange, power generation, agriculture and air ticketing services. Thus it has diverse business activities now.
As of June 30, 2022, it had a network of 997 branches spread in the states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry and employed 3570 persons in business operations. The company belongs to the Kosamattam Group led by Mathew K. Cherian with a headquartered in Kottayam in the state of Kerala.
DEBT OFFER DETAILS:
For the purpose of onward lending (40%) and repayment of interest and principal of existing loans (35%) as well as general corpus fund need (25%), KFL is coming out with a debt offering of Secured and Unsecured Redeemable Non-Convertible Debentures of Rs. 1000 each for Rs. 175 crores with a green shoe option to retain oversubscription to the tune of Rs. 175 crores making the total issue size of Rs. 350 crores. The issue is opening for subscription on July 13, 2022, and will close on or before August 04, 2022. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiples of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE. It will spend Rs. 1.60 cr. for this entire issue proceeds.
These NCDs have tenures of 400 days, 36 months, 42months, 48 months, 54 months, 60 months and 88 months. It offers coupon rates of 7.00% to 9.50% based on the selection by investors. The frequency of interest payments will be Monthly or cumulative as per the choice of investors. Allotment of these NCDs will be in dematerialized mode only. Application is to be made through ASBA mode only.
For this issue, the company has once again changed its rating agency. This issue is rated as BWR BBB+ Outlook “Positive”, by India Ratings I& Research Pvt. Ld., this rating indicates that instruments with such ratings are considered to have a moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk. The issue is solely lead managed by SMC Capitals Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue. Vistra ITCL (India) Ltd. is the debenture trustee.
This rating is not a recommendation to buy, sell or hold securities and investors should make their own decisions. The rating provided by the rating agency may be suspended, withdrawn or revised at any time by the assigning rating agency on the basis of new information etc., and should be evaluated accordingly.
For the last three fiscals, the company has posted total income/net profits of Rs. 499.33 cr. / Rs. 47.66 cr. (FY20) and Rs. 541.84 cr. / Rs. 65.25 cr. (FY21), Rs. 624.79 cr. / Rs. 78.92 cr. (FY22). Thus it has shown gradual growth in its top and bottom lines.
KFL’s net NPAs have declined from 1.07% for FY20 to 0.95% got GY22. As of September 30, 2021, its current paid-up equity capital of Rs. 216.88 cr. is supported by free reserves of Rs. 440.15 cr. Its debt-equity ratio of 5.87 as of March 31, 2022, will rise to 6.40 post this debt issue.
Conclusion / Investment Strategy
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.