I am sharing my views on the IIFL NCD issue that opens on 17 September 2013.
I had shared my analysis on the IIFL NCD issue that was launched earlier in September 2012. I recommend that you read the earlier analysis first.
Key differences
IIFL NCD September 2013 is a secured issue. It ranks higher than the unsecured issue from 2012 in terms of claims on assets. It has a “Care AA” rating from CARE.
My view
You should look at returns on a post-tax basis. For someone in the highest tax bracket, the 12% coupon rate works out to approximately 8.4% post-tax. The post tax return figure for an investor in the 10% tax bracket is 9.6%. It is 10.8% for someone in the 20% tax bracket.
I shared this view last year that one should not chase a 2-3% yield difference over other conventional options like bank FDs. I still maintain this view for someone in the 10% tax bracket.
If you are indeed interested in debt investment options, why not look at the REC bonds issue which is open right now? It is tax free with a return on 8.71%. It has a better credit rating – “CARE AAA”.
REC has a higher return on net worth than IIFL. It stands at around 23% for FY13 (on average basis) versus IIFL which has a net worth of around 11% for FY12. Both these figures are for standalone financials. A higher return on net worth for similar leverage (debt to equity of around 6 times for both companies) suggests a better financial profile for REC as compared to IIFL.
There is one hitch (or boon) depending on your investment period. REC has a 15 year maturity period whereas IIFL NCDs have a 3 year and a 5 year period respectively. If you have a shorter investment period REC might not be right for you.
You might argue that both will get listed on the exchange. Hence, exit should not be a problem.
Both instruments will get listed on the exchanges. The problem with listed debt in India is that usually there is low liquidity. So, if you are hoping to exit down the line, you might not get an opportunity.
Do share your views – for or against this investment using the comments section below. As usual, the disclaimer applies.
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