Bond Review

October 12, 2010

Rating matrix L&T Infrastructure Finance Company Ltd
Rating : CARE AA+ by CARE
LAA+ by ICRA Long Term Infrastructure Bond 2010A Series
Instruments with rating of ‘CARE AA+’ by CARE are considered to
offer high safety for timely servicing of debt obligations. Such Bonds with tax benefits…
instruments carry very low credit risk. Instruments with a rating of
‘LAA+’ by ICRA indicate high credit quality and the rated
The L&T Infrastructure Finance Company Limited bonds are classified as
instruments carry low credit risk. “long term infrastructure bonds”. They are being issued in terms of
Issue Details Section 80CCF of the Income Tax Act wherein the amount to the extent
of Rs 20,000 per annum, paid or deposited as subscription to the bonds,
Issue opens October 15, 2010
shall be deducted in computing the taxable income of a resident
Issue closes November 2, 2010
individual or HUF. Therefore, an investment of Rs 20,000 in these bonds
Issue size (Rs crore) Rs 200 crores with an option to could save tax of Rs 6,180 in FY11 (assuming a marginal tax rate @
retain an oversubscription of up to 30.9%), implying a net investment of only Rs 13,820. Effective yield after
Rs 500 crores.
Tax adjustment to the investors, therefore, can be as high as: 17.2% for
Face Value Rs 1,000 /- per bond marginal tax rate @ 30.9%, 13.4% for marginal tax rate @ 20.6%, 10.2%
Minimum Application 5 bonds for marginal tax rate @ 10.3%.
Maturity / redemption 10 years * Issue details
Lock In period 5 years * The company plans to raise Rs 200 crores with an option to retain any
Buy Back Option At the end of 5 years and 7 years oversubscription of up to Rs 500 crores. The bonds have a face value of
from the date of allotment Rs 1,000 with 10 years maturity. There is a lock-in period of five years
Listing NSE
from the date of allotment. There is a buyback option after seven years
under Series 1 and Series 2 and after five years under Series 3 and Series
* From the date of allotment 4. Minimum subscription per application is five bonds. The bonds will be
listed on the National Stock Exchange (NSE). However, trading of the
Objects of the Issue
The funds raised through this issue will be utilised towards
bonds on the NSE can take place only after the expiry of the lock-in
“infrastructure lending” as defined by the RBI in the regulations period. Investors also have an option to hold the bonds in physical form.
issued by it from time to time, after meeting the expenditures of, and Interest paid will be taxable in the hands of the investor.
related to, the Issue. Exhibit 1: Interest rates under different series
Series 1 2 3 4
Face Value Rs.1000 Rs.1000 Rs.1000 Rs.1000
Interest payment Annual Cumulative Annual Cumulative
Interest Rate 7.75% 7.75% 7.50% 7.50%
Time to Maturity 10 Years 10 Years 10 Years 10 Years
Buyback Facility Yes Yes Yes Yes
Time To Buy Back 7 Years 7 Years 5 Years 5 Years
Fact sheet Source: Prospectus – L&T Infrastructure Finance ltd., ICICIdirect.com Research *under the cumulative option
Pre-Issue (as on Post-Issue interest will be compounded annually
June 2010) (Rs Cr.)
(Rs Cr.) Conclusion
Total Debt 3400 4100 To encourage investment into the infrastructure sector, a tax deduction
for investment up to Rs 20,000 p.a. in long-term infrastructure bonds by
Share holders Fund 1062 1062
individuals was introduced under Section 80CCF in the Finance Bill 2010.
Debt to Equity 3.20 3.86** This is in addition to the deduction of Rs 1 lakh p.a. available under
** assuming subscription of Rs 700 Cr. from the proposed Section 80C. The bond therefore offers an additional option to save tax.
Issue in the secured debt category as on June 30, 2010. The Tax benefit also increases the effective rate of returns on the bond.
actual debt-equity ratio post the Issue would depend on the
actual position of debt and equity on the Date of Allotment.
Exhibit 2: Effective yield with tax benefits u/s 80CCF assuming Rs 20000 is invested in bonds
Financial data Tax Rates (%) Effective Investment* Series 1 (%) Series 2 (%) Series 3 (%) Series 4 (%)
Total Assets (31st March 2010) Rs 4249Cr. Effective Yield on Maturity (with Tax Benefit)
GNPA (31st March 2010) Rs 79 Cr. 30.9 13820 13.58 11.81 13.25 11.55
st 20.6 15880 11.29 10.26 11.00 10.01
NNPA (31 March 2010) Rs 71 Cr.
10.3 17940 9.38 8.93 9.11 8.67
Equity capital Rs 683 Cr.
Effective Yield on Buy Back (with Tax Benefit)
Face value (Equity Shares) Rs 10 30.9 13820 15.23 13.59 17.20 15.75
20.6 15880 12.31 11.36 13.42 12.58
Analyst’s name 10.3 17940 9.86 9.44 10.23 9.86
Sachin Jain
sachin.ja@icicisecurities.com
Source: ICICIdirect.com Research *Effective Investment = Rs. 20000*(1- Tax rate)
Sheetal Ashar
sheetal.ashar@icicisecurities.com

ICICIdirect.com | Equity Research

 Company Background

L&T Infrastructure Finance Company Limited (LTIFCL) is a wholly owned

subsidiary of L&T Finance Holdings Ltd., which is a wholly owned
subsidiary of Larsen and Toubro Limited. LTIFCL is a systemically
important non deposit taking NBFC and classified as an Infrastructure
Finance Company (IFC), focused on financing of infrastructure projects
covering the power, roads, telecommunications, oil & gas and ports
sectors in India. LTIFCL provides infrastructure financing solutions
through a mix of debt, sub–debt, quasi-equity and equity participation. It
also offers project advisory and loan syndication services.

Company financials

In FY10, total assets of LTIFCL grew by 77% and stood at Rs 4,249 crores
as on March 31, 2010 from Rs 2,397 crores as on March 31, 2009.

The company achieved a growth rate of 88% in its loans and advances to
Rs 4,255 crores while Net Interest Income grew 57% to Rs 199 crores
during the same period. Net Interest Margin stood at 4.7% in FY10, which
we believe, will come under slight pressure with rising rates, going
forward. However, infrastructure status should help guard against a sharp
rise in cost of funds.

In FY10, the company has achieved a PAT growth of 46%. LTIFCL has
delivered a RoA of 3.28% and RoE of 13.5% in FY10. The same is
expected to improve. Leverage continues to be low at 4.2x as on March
31, 2010 providing cushion to future growth. Net non performing assets
(NNPA) stood at 1.66%.

The net worth of the company stood at Rs. 1,013 crores as on March 31,
2010.

Exhibit 3: Financial summary

Year to March FY10 FY09
Disbursements (Rs. Crore) 3796 1424
Loans (Rs. Crore) 4288 2266
Net Interest Income (Rs. Crore) 199 127
NIM (%) 4.7 5.4
Net Profit ( Rs. Crore) 111 77
GNPA (%) 1.8 0.0
NNPA (%) 1.7 0.0
RoNA (%) 3.3 3.5
RoE (%) 13.5 13.0
Source: Company, ICICIdirect.com Research

Key Risk and Concerns relating to the Bonds

§ In India, the corporate bond market is not developed and liquidity

of the bonds on the exchange after the stipulated lock in period
remains a concern. However, buy back option provides investors
an option to redeem the bonds at end of 7 years under Series 1 &
Series 2 and at end of 5 years under Series 3 and Series 4.
§ Fixed income instruments always carry interest rate risk. Increase
in market interest rates will have a negative impact on the price of
the bonds.
§ Any adverse development in future may affect the credit rating of
the bond thereby having negative impact on price of the bonds.

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 Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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