Understanding the Latest Non-Convertible Debenture Offering in the Market

Poonawalla Fincorp, a key player in the Indian financial services sector, has made a notable announcement to issue non-convertible debentures (NCDs) worth up to Rs 190 crore. This new move allows investors to explore an opportunity with potential returns while navigating the complex world of investment. Let’s break down what Poonawalla Fincorp’s latest offering is all about and what it means for investors.

What is Poonawalla Fincorp’s NCD Offering?

Poonawalla Fincorp plans to issue non-convertible debentures (NCDs) up to a total of Rs 190 crore. This includes an initial offer of Rs 100 crore with a green shoe option of Rs 90 crore, which allows for an increase in the issue size depending on demand. These NCDs will come with a fixed coupon rate of 2% above the base rate, offering a steady return for investors seeking a relatively low-risk option.

Each NCD will have a face value of Rs 1 lakh, and they are expected to be redeemable. Furthermore, they will be listed on the Bombay Stock Exchange (BSE), making it easier for investors to trade them once issued. The BSE listing is a key factor, as it offers liquidity to those who may want to sell or purchase these debentures after the issuance.

Poonawalla Fincorp’s Business and Market Position

Poonawalla Fincorp is a non-deposit-taking, systemically important non-banking finance company (NBFC) that operates under the larger Cyrus Poonawalla Group. The company offers a wide array of financial products, ranging from personal loans, business loans, and loans for professionals to loans against property, machinery financing, and medical equipment loans. Its ability to cater to different customer needs through a diverse range of services is one reason it stands out in the competitive financial sector.

As of September 2024, Poonawalla Fincorp had a substantial asset base of Rs 28,396 crore. The company employs around 2,560 people and serves a large number of customers across various sectors. Despite its size and reach, the company has recently reported a decline in its financial performance, with a net loss of Rs 471.04 crore in the second quarter of FY25. This loss contrasts sharply with the net profit of Rs 860.17 crore during the same period the previous year.

Key Features of the NCDs

The NCDs being issued by Poonawalla Fincorp come with a range of features designed to attract investors. As mentioned, each NCD will have a face value of Rs 1 lakh, and the coupon rate offered is 2% above the base rate. This means that the rate of return will be higher than the standard market rate for fixed-income products, which makes the offering appealing to those who are seeking a steady stream of income.

Moreover, these debentures are secured, rated, and listed, which adds layers of credibility and security for the investors. The fact that they are redeemable means that investors can expect their principal to be returned at the end of the tenure, assuming no defaults occur. Listing on the BSE also enhances liquidity, allowing investors to easily trade these bonds if needed.

Why Did Poonawalla Fincorp Choose to Issue NCDs?

The decision to issue NCDs is likely part of Poonawalla Fincorp’s strategy to raise capital, which can be used to fund its future growth, repay existing debt, or support other corporate initiatives. The green shoe option also gives the company the flexibility to expand the offering if demand from investors is higher than expected.

At a time when the company is grappling with a decline in profitability, this capital-raising initiative could help stabilize its financial position and strengthen its operations. It also signals Poonawalla Fincorp’s commitment to providing solid returns for its investors, despite the challenges it is facing in the market.

What Should Investors Consider?

For potential investors, the NCD offering by Poonawalla Fincorp could be an attractive option, especially for those looking for fixed returns. The 2% over and above the base rate provides a relatively stable income. The fact that these debentures are secured and listed also adds a level of safety and transparency to the investment.

However, investors should be mindful of the company’s recent performance. Poonawalla Fincorp has posted a significant loss in the recent quarter, and its total income has been declining. While the company has a strong track record and a large market presence, it is important for investors to assess the risks involved before investing. Understanding the company’s financial health and the potential for recovery will be key in making an informed decision.

The Liquidity Advantage

One of the major selling points of Poonawalla Fincorp’s NCDs is their liquidity. The listing on the Bombay Stock Exchange ensures that these debentures are easily tradable. This offers investors the ability to sell their holdings before the maturity date if they need to access their funds. This liquidity is particularly important for investors who want the security of a fixed-income product but also prefer the flexibility to exit the investment if required.

Should You Consider Poonawalla Fincorp’s NCDs?

If you are an investor looking for a fixed-income product that offers a decent return and some degree of security, Poonawalla Fincorp’s NCDs could be worth considering. The 2% coupon rate above the base rate is a competitive offering in the current market. Moreover, the company’s reputation and the backing of the Cyrus Poonawalla Group lend credibility to this investment.

However, it’s essential to factor in the company’s recent financial performance, including the net loss and declining income. For risk-averse investors, these factors might be cause for concern. If you are comfortable with some level of risk and are looking for a potentially rewarding fixed-income opportunity, Poonawalla Fincorp’s NCDs could be a solid addition to your portfolio.