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High Yield | BBB /Stable Rated | Minimum Investment: 10k Only
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Bond overview
Sakthi Finance Limited is issuing the Non-Convertible Debentures. These NCDs are BBB/Stable rated by ICRA. The NCDs are being issued in seven series: coupon ranges from 9% to 10.25% p.a. and different tenures of 24 months, 36 months, 60 months and 85 months. The NCDs are secured and redeemable in nature.
Coupon rates and effective yield for each of the series
Allocation Ratio
Investment Process for Sakthi Finance Ltd NCD IPO
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Financial Overview
Snapshot stating the Revenue, Expenses, PAT (In crores)
Cash flow for last 5 years (In crores)
Cash flow refers to the movement of cash in and out of the business at a specific point in time. It represents the net balance of the cash movement.
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- *Cash flow from operating activities reflects the amount a company generates through its product of services.
- **Cash flow from investing activities reflects cash generated and spent relating to investing activities, like purchase of assets, sales of securities etc.
- ***Cash flow from financing activities gives an insight into the financial stability of a company to its investors. It reflects the net flows of cash that are used to fund the company.
Ratio Analysis
Issue analysis
Pros
- The NCD is BBB rated security with a stable outlook, which falls under investment grade category.
- The yield offered is upto 10.65% which is much higher than many traditional fixed-income investments like FDs.
- The company maintains a good Capital Adequacy Ratio, indicating that it has a sufficient capital buffer to absorb unexpected losses.
Cons
- The NBFCs operations are primarily focused within a specific geographic region, with South India accounting for 95% of its activities.
- Despite recent improvements, Sakthi Finance Limited’s profitability remains subdued with increasing operating costs.
LiquidityPosition: Adequate
Healthy Liquidity Reserves
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- Unencumbered cash & liquid investments: ₹54.26 crore as of Sept 30, 2024.
- Monthly collections of ₹60-65 crore, supporting liquidity.
- No negative cumulative mismatches in Asset-Liability Maturity (ALM) Profile over the next 12 months.
Public Deposits & Debt Obligations
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- ₹141 crore in public deposits as of Sept 2024.
- Debt obligation of ₹137.4 crore (Oct-Dec 2024), including ₹38.5 crore in sub-debt payments.
Funding Diversification Needs
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- Heavy reliance on market borrowings (NCDs) & retail deposits.
- Required to increase lender diversification for long-term growth sustainability.
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About Sakthi Finance Limited
Sakthi Finance Limited is an Asset Finance Company within the NBFC sector, established in 1955 in Pollachi, Tamil Nadu. Sakthi Finance was started with the intent of catering to the hire purchase requirements of the TELCO dealerships of the Sakthi Group. The company now offers financing for purchasing assets like commercial vehicles, construction equipment, and machinery. Apart from that, the company also accepts deposits from the public and offers bonds and debentures at attractive rates to investors.
The company has a strong presence in southern states like Kerala,Tamil Nadu and Andhra Pradesh accounting for more than 95% of the market share in these areas. More than 96% of the revenue comes from Interest Income and rest is covered through commission income and sale of power from windmills. Sakthi Finance and one of its group companies Sakthi Sugars both are listed on the Stock Exchange.
Strengths
Established Franchise & Industry Presence
- Over six decades of experience in vehicle financing.
- Strong regional presence in Tamil Nadu, Kerala, Andhra Pradesh, and Karnataka.
- Specialization in used commercial vehicle (CV) financing, leveraging expertise in this segment.
Diversified Borrowing Profile & Fundraising Ability
- Raised ₹816 crore via NCDs over six years, demonstrating strong market confidence.
- Successfully issued public and private NCDs, raising ₹100 crore in Nov 2024.
- Broad funding base: Banks, financial institutions, deposits, and debenture markets.
Adequate Capitalization
- Capital Adequacy Ratio (CAR): 17.1% as of September 2024.
- Gearing stood at 5.4x as of June 2024, improving from 6.1x in March 2024.
- Plans to maintain gearing below 6.0x, supported by capital infusion and better accruals.
Improved Profitability Metrics
- Net Interest Margin (NIM): 6.9% in Q1 FY2025, up from 6.6% in FY2024.
- Return on Assets (RoA): 1.2% in FY2024, improving from 1.0% in FY2023.
- PAT (Profit After Tax): ₹15.7 crore in FY2024, up from ₹12.5 crore in FY2023.
- Introducing new product offerings (e.g., fuel loans, tyre loans, insurance funding) to drive margin expansion.
Asset Quality Under Control
- Gross Stage 3 (GS3) assets at 5.1% in Sept 2024, down from 5.5% in June 2024.
- Provision coverage at 49.7% as of June 2024.
- Strong collection efficiency, despite higher delinquencies due to heatwaves and elections.
Weakness
Geographical Concentration Risk
- 95% of portfolio concentrated in Tamil Nadu & Kerala, limiting geographic diversification.
- Limited branch expansion plans, restricting future growth potential.
High Leverage & Funding Constraints
- Gearing at 6.0x in Sept 2024, an increase from 5.4x in June 2024.
- Heavily reliant on NCD issuances, requiring further diversification of funding mix.
Subdued Loan Portfolio Growth
- CAGR of 3% (FY2020-FY2024), relatively slow compared to industry growth rates.
- Loan book declined 1% QoQ to ₹1,236 crore in June 2024, due to lower disbursements.
Profitability Challenges Due to Rising Costs
- Credit costs increased to 0.6% in Q1 FY2025, up from 0.4% in FY2024.
- Operating costs rose to 4.8% in Q1 FY2025, from 4.4% in FY2023, impacting profitability.
Regulatory & Compliance Risk
- Previously non-compliant sub-debt (₹209 crore as of Dec 2023), requiring enhanced regulatory adherence.
- Deposit-taking NBFC, requiring adherence to stricter RBI regulations.
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Source- Prospectus March 10 , 2025
Disclaimer – The information is published as on date 17/03/2025 based on information available on Prospectus March 10,, 2025. The information may be subject to change in case of change in terms of prospectus or any other reason as the case maybe. Contents which are exclusively for educational information/knowledge sharing on capital market concepts and has no influence the investment/sale decisions of any investors
