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May 25, 2015
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India Infoline Investment Services – Buy

| 8/3/2011 6:08 PM Wednesday

In an environment of rising interest rates, banks are going to see some tough times. This is not only due to the squeeze in their Net Interest Margin (NIM), but also because various companies and NBFCs are tapping the market to raise funds in the form of debentures and bonds offering higher coupon rates.

One such company is India Infoline Investment Services Limited (IIISL), a 76.74 per cent subsidiary of India Infoline Limited (IIFL). The company is making a public issue of Secured Redeemable NCDs of face-value of Rs 1000 each, aggregating to Rs. 375 crore, with an option to retain another Rs. 375 crore, totaling Rs 750 crore. The NCD issue has options with a maximum coupon rate of 11.90 per cent per annum, and will be listed on NSE and BSE. The issue opens on August 4, 2011, and closes on August 12, 2011. These NCDs have been rated ‘[ICRA] AA- (stable)’ by ICRA and 'CARE AA-' by CARE, indicating a high degree of safety for the timely servicing of financial obligations.

The funds raised through this issue will be used for various financing activities, including lending, providing loans against securities and investments, repaying existing loans and for business operations, including capital expenditure, general corporate purposes and working capital requirements.

IIISL also has three 100 per cent subsidiaries, which are India Infoline Housing Finance, Moneyline Credit and India Infoline Distribution Company. IIISL offers a broad suite of lending and other financial products to clients, both retail and corporate. Its lending and other financial products comprise:

  • Mortgage Loans, which include Housing Loans and Loans against Property
  • Capital Market Finance,  which includes Loans against Securities, Promoter Funding, Margin Funding, IPO financing and other structured lending transactions
  • Gold Loans, which include finance against security of mainly used gold ornaments
  • Healthcare Finance, which includes finance for medical equipments and project funding in the healthcare sector
  • Personal Loans to individuals

The company operates in the mortgage loans business along with two of its subsidiaries, India Infoline Housing Finance and Moneyline Credit. Mortgage loans account for 60 per cent of the loan book, followed by capital market finance with a figure of 35 per cent, and gold loans with 4 per cent.

The following are the Operational and Financial Parameters (Consolidated):

Operational and Financial Parameters (Consolidated) (Rs/Crores)
FY 11
FY 10
FY 09
Loan Book
Total Borrowings
Net Worth
Debt Equity ratio
Capital Adequacy ratio (%)*
Net NPA (%)
Net Interest Income
Yield on Earning Assets (%)
Cost of funds (%)
Net Interest Spread (%)
Net Interest Margin (%)
Cost to average assets (%)
Cost to Income (%)
RoA (%)

The basic question that would arise is, should one go for the NCD? If yes, which option one should choose from the three being offered by the company? Our answer is that one should go for the NCD, considering the coupon rate offered by the company. If one is not looking at yearly interest, then we would suggest going for Option B, where holding anything more than one year would attract only 10 per cent capital gains against income tax rate, based on your taxable income, which would be in the region of 30 per cent. In other words, the post-tax returns would be best if one goes for Option B.

36 months
40 months
60 months
Frequency of Interest Payment
Minimum Application (Rs)
Rs 5000
Coupon (%)
11.70% p.a.
11.90% p.a.*
Redemption Amount (Rs/per NCD)
Rs 1446.18
* 11.70% p.a. for applicants other than Resident Individuals and Hindu Undivided Families (HUF)

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