As the RBI pauses on interest rate hikes for the second time in succession, there is widespread expectation that we may be close to the peak levels now. It may, therefore, be a good time for retail investors to lock into higher interest rates available from various fixed income instruments.

IIFL Finance is coming out with a non-convertible debenture (NCD) issue with reasonably attractive coupons and yields. The non-banking finance company (NBFC) and its subsidiaries provide gold, home, and business loans. In addition, they are into giving loans against property, medium & small enterprise financing, and microfinance.

The issue is open and closes on June 22. Read on for more about the NCD issue to take an informed call about investing.

Also read: IIFL Finance fully repays its maiden $400 million dollar-bonds issue

Attractive interest rates

IIFL Finance is rated AA/Stable by CRISIL and ICRA, indicating a high degree of safety regarding servicing of principal and interest with low credit risks.

The secured NCD offers three tenors – 24 months, 36 months, and 60 months. The coupons on offer range from 8.35 per cent to 9 per cent. There are annual payout and cumulative options for all three tenors. The 60-month tenor also offers a monthly interest payout option.

RBI data indicates that the g-secs maturing in 2028 trade at a yield of 6.97 per cent. Data from Kotak Mutual Fund suggests that 5-year AA rated securities trade at a spread of 103 basis points over g-secs as of June 8.

The IIFL Finance issue thus seems quite attractive, given that the 36-month and 60-month tenors offer 8.49 per cent and 9 per cent yields, respectively.

Investors wanting regular payouts can choose to receive them, while others can opt for the cumulative option.

Also read: IIFL Finance eyes ₹1-lakh crore AUM in three years

If investors can wait to stay for 60 months, they can opt for that tenor with an annual payout as the coupon is 9 per cent and the yield is 8.99 per cent. If not, the 36-month tenor can be taken.

All interest earned from NCDs would be taxed at your applicable slab. The tax would also be deducted at a source beyond ₹5,000 interest amounts.

The minimum investment amount would be ₹10,000.

On growth mode

Home and gold loans are the key segments of the company and makeup about two-thirds of the overall book. IIFL Home Finance, a subsidiary, disburses home loans.

Now, IIFL Finance has delivered on key metrics in FY23, the first full post-Covid year of operations.

  • Loan assets under management (AUM) have grown 26 per cent YoY in FY23 to ₹64,638 crore.
  • Gross non-performing assets (GNPA) declined from 3.15 per cent in FY22 to 1.84 per cent in FY23. The Net NPA fell to 1.08 per cent in FY23 versus 1.83 per cent in FY22.
  • The yield from the loan book portfolio increased from 15 per cent in FY22 to 16.6 per cent in FY23
  • The average cost of borrowing has increased only a wee bit in light of the rising interest rates. The cost of borrowing was 8.8 per cent in FY23 as against 8.5 per cent in FY22. The RBI increased repo rates by 250 basis points in the last one year.
  • The average interest spread increased from 6.5 per cent in FY22 to 7.8 per cent in FY23.
  • The return on assets rose to a healthy 3.3 per cent in FY23 versus 2.7 per cent in FY22.
  • At the NBFC level, IIFL Finance has a capital adequacy of 20.4 per cent. The home finance subsidiary has a capital adequacy of 47.3 per cent.

It is clear from the above metrics that the company operates with fairly healthy financials. Investors can thus consider investing in these NCDs.

Related Topics