Skip to main content

L&T Infrastructure bond

 

 

L&T Infra's bond issue seems to be a suitable investment for those who have still not invested in infra bonds for tax saving. But others can give it a miss



Issue details:

Company Name: LTIF
Issue Size: 200 cr
Face Value: 1000/ Bond
Issue Date: Oct 15-NOV 2


L&T Infrastructure Finance (LTIF) is coming out with an infrastructure bond to raise capital to fund its growth plans. The move comes on the back of LTIF being accorded the status of infrastructure finance company (IFC). While the issue terms are on similar lines to the earlier issue of IDFC, investors should consider investing only for the tax rebate attached to it.

BACKGROUND:

As per the current norms, IFCs can raise up to 25% of their gross disbursements in FY10 through bonds. While the company is not publicly listed, bonds would be tradable on the National Stock Exchange, post the lock-in period of five years.


   While a portion of the proceeds might be used to meet the issue expenses, majority of it will be used for boosting its infrastructure lending business. Earlier this month, IDFC also came out with a similar bond issue.


   With the government providing the tax shield for investments in infrastructure bonds over and above the maximum limit of Rs 1 lakh under Section 80C of the Income-Tax Act, other IFCs might also hit the market with similar issues.

BUSINESS:

Set up in 2007 as a nonbanking finance subsidiary of L&T, the company is primarily focused on providing debt finance to infrastructure projects. The company was given the IFC status in July 2010. It can thus access long-term funds to meet its growth plans. To add to this, the limit of bank financing and external commercial borrowings has also increased.


   The company has a diversified disbursement mix with the power sector forming almost 39% of its advances. Apart from this, the company also provides financing to companies in the telecom, roads, oil and gas, ports and other infrastructure sectors such as logistics, SEZs, etc.

FINANCIALS:

LTIF has grown at a fast pace since its inception. The company recorded a 60% compounded annual growth rate (CAGR) in its total income in the past three years. Total income for FY10 stood at Rs 4,504 crore. The surge can be attributed to the rise in loans or advances. Net loans of the company almost doubled in FY10 to Rs 4,255 crore. Last year, LTIF saw almost 50% hike in its interest costs. Even after this, the increase in net profit has been substantial. Net profit at the end of FY10 stood at Rs 110.8 crore, up 45% from the year-ago period. In fact, the company averaged 57% growth in net profit since FY08.


   Moreover, the company is adequately capitalised with its capital adequacy ratio being 22% vis-à-vis the 15% minimum required for an IFC. A strong capital base will help the company scale up operations at a fast pace.

RETURNS ON INVESTMENT:

The company is issuing the bond in four different series (see table). Though the bond seems to be giving a yield of 7.75% or 7.5%, based on the series chosen, the actual yield to investors will be higher accounting for the inherent tax advantage in the bond. To add to this, investors will have the option to redeem the principal from the company at the end of 5 or 7 years.


   Assume an investor in the tax bracket of 30.9%, who invests in the Series 3 of the bond issue and intends to exercise the buyback option at the end of five years.


   The yield on investment for such an investor could go as high as 13%, considering the tax benefit in the first year and annual tax-adjusted interest income.


   If not for the attached tax benefits, the yields and lock-in of these bonds mean investors would be better off investing in other avenues such as bank fixed deposits.

 

Popular posts from this blog

Buying a Used Car

Invest in Mutual Funds Online Download Mutual Fund Application Forms   Pre-owned car can make sense in these inflationary times. But buying one can be trickier than getting a new vehicle    If you are thinking of buying a car but are worried about the rising inflation and higher EMIs eating into your budget, you should consider buying a used car. For those learning to drive, the general advice is that they should hone their driving skills in a used car. However, buying a used car is not an easy task. Though a used car costs less, there are a lot of aspects to be considered while buying one. You should do your due diligence before buying such a car. For example, two cars of the same model would carry two different prices. The difference in price could be on account of the age of the car, how many people have driven, etc. First Fix Your Budget Since used cars are available in a wide variety of models and prices, the starting point would be to determine your budget befor...

Save Tax With Mutual Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Debt Mutual Funds Best Fixed Income Investments

Debt Mutual Funds - Invest Online     In the last one year, except for a select few sectoral funds and small cap funds, not many of the equity funds have given great returns. On the other hand, debt funds have done relatively well in terms of returns. So far in the new year too, the stock market has been extremely volatile, pushing investors to look for safer havens. In this context, debt funds are looking safer bets for those investors who do not have the appetite for higher level of volatility. Investors who look for a regular income stream, also look at fixed income products like debt funds, bank fixed deposits and post office monthly income schemes.  Among the fixed income products, debt funds score over others because of chances of higher return, has nearly similar level of risks and liquidity. According to Shah, people looking for regular income could opt for a systematic withdrawal plan (SWP) in debt funds , which, if done judi ciously could also save on taxes. Shah explaine...

Diversification is key to gain more

Even those who prefer debt for its safety are looking at more options    It is not often that you find more than a couple of asset classes producing good returns at the same time. Invariably, assets such as gold and equity don't perform in tandem, and hence it was easier to allocate to them in line with the risk profile of the investors. In the last couple of quarters, however, more than one asset has turned attractive - gold, debt and equity. In line with the trend, you even have monthly income plans with a combination of more than two assets.    In the past, those who stuck to debt were a different class of investors who didn't wish to take risk with their money. The changing lifecycles and the growing integration of investment markets across the globe have pushed even individual investors to embrace the concept of asset allocation. Hence, you have individuals who were using debt to park profits being prepared to take advantage of other assets.    For instance, when the...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now