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Bond overview 

Surat Municipal Corporation is offering secured, redeemable Non-Convertible Debentures (NCDs) that carry a provisional ‘AA+/Stable’ credit rating from CRISIL. The issuance comprises two STRPPS* with distinct tenors of 4 and 5 years, each having a face value of ₹500.

*STRPPS are a financial structure where the principal of a bond is repaid in several tranches over time. Each scheduled principal repayment is classified as a distinct, tradable security, allowing investors to buy and sell rights to these specific future cash flows separately.

Coupon rates and effective yield for each of the series 

Allocation Ratio

The allocation ratio is prepared based on norms laid down by SEBI. Before announcing the allocation ratio, the same has to be approved by SEBI.  Once the IPO subscription closes, applications will be divided into different categories. The category-wise allocation ratio is always decided and declared during the launch of the particular IPO. Considering the Allocation Ratio, units will be assigned to applicants. Refer to the chart to know the application ratio for Surat Municipal Corporation NCD-IPO. 

Investment Process for Surat Municipal Corporation NCD IPO

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Financial Overview

Snapshot stating the Revenue, Expenses, Net Worth and PAT (In crores)

Cash flow for last few 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.

• *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.

Issue analysis

Pros 

• Strong Credit Rating: Provisionally rated AA+/Stable by both CRISIL and India Ratings, indicating high safety and low credit risk.
• Secured Structure: Bonds are secured and redeemable, with a minimum 1x security cover and a Debt Service Reserve Account (DSRA) equivalent to one year’s interest obligation.
• Attractive Coupon: Both STRPP A (4 years) and STRPP B (5 years) carry an 8% coupon, competitive compared to FDs (5–7.8%).
• Green Bond Incentives: Issuance under the AMRUT 2.0 framework, with eligibility for central government incentives for green municipal bonds.
• Listing Benefit: Proposed to be listed on NSE and BSE, improving liquidity for investors.
• Use of Proceeds: Proceeds earmarked for sustainable infrastructure projects (solar, wind, e-bus depot, waste processing, water treatment), aligning with ESG-focused investments.

Cons

• Municipal Risk Profile: Unlike corporate issuers, municipal corporations depend heavily on tax/non-tax revenues and grants; delays or shortfalls in collection could affect servicing.
• No Underwriting: The issue is not underwritten, so subscription levels depend fully on market demand.
• Project Execution Risk: Funds are tied to multiple infrastructure projects; delays, cost overruns, or regulatory hurdles could impact repayment capacity.
• Interest Rate Risk: If market rates rise significantly over 4–5 years, the fixed 8% coupon may become less attractive.
• Limited Investor Base: While open to retail, institutional appetite will largely drive liquidity and secondary market performance.

Liquidity

Superior Liquidity: Unencumbered cash and bank balance of ₹1,000+ crore as of July 31, 2025, along with healthy annual revenue surplus (~₹909 crore). Liquidity is expected to remain strong and sufficient to meet debt obligations while partly funding capex.

To get better returns than Bank FDs, invest in NCD-IPOs online. 

About Surat Municipal Corporation

The Surat Municipal Corporation (SMC), established in 1966, governs Surat—India’s 8th largest city and a major hub for textiles and diamonds. Backed by strong finances, SMC reported a revenue surplus of ₹909 crore in FY2025 and maintained cash & bank balances exceeding ₹1,000 crore with ~92% property tax collection efficiency. Recognized for efficient civic services and innovative green initiatives, SMC is among the few Indian municipalities to successfully issue AA+/Stable rated municipal bonds, funding over ₹10,000 crore worth of planned infrastructure under AMRUT and Smart City projects.

Strengths

• Robust Operating Surplus: Revenue surplus of ₹909 crore in FY2025 (vs ₹832 crore in FY2024), supported by higher tax rates and increased user charges.
• Escrow & DSRA Mechanism: Bond repayment secured via escrowed revenues and DSRA (Debt Service Reserve Account) equivalent to one year’s interest, ensuring strong debt protection.
• Strong Collection Efficiency: Property tax collection efficiency at ~92% in FY2025, reflecting effective civic systems and reliable cash flow.
• Debt-Free Position: As of July 31, 2025, no outstanding debt; cash and bank balances, including fixed deposits, exceeded ₹1,000 crore.

Weakness

• High Dependence on State Grants: Grants and compensation from the state still form a key revenue component, though reduced to 21% in FY2024 from 45% in FY2013. In FY2025, SMC received ₹790 crore as octroi compensation.
• Large Capex Burden: Planned projects under AMRUT, Dumas sea development, barrages, etc., estimated at ~₹10,000 crore over five fiscals. Rising capex may increase debt and pressure financial risk profile.

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Source – Offer Document, September 18, 2025

Disclaimer – The information is published as on date 30/09/2025 based on information available on Offer Document, September 18, 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

About GoldenPi Expert

With over 15 years of experience across fixed income and debt markets, he brings deep domain expertise along with a strong focus on investor education and transparency. An alumnus of IIT Kharagpur and IIM Calcutta, his views are personal and should not be considered investment advice.

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