ASSIGNMENT ON

BOND SELECTION
USING
CREDIT RATING MODEL

The four companies selected for evaluation are:

1.
2.
3.
4.

Mannapuram
National Thermal Power Corporation Limited
Shriram City Union Finance Limited
National Hydroelectric Power Corporation.

Methodology.
Calculation of Altman Z score
Z-Score = (X1 x 1.2) + (X2 x 1.4) + (X3 x 3.3) + (X4 x 0.6) + (X5 x 1.0)
X1- [Working Capital / Total Assets]
X2- [Retained Earnings / Total Assets]
X3- [EBIT / Total Assets]
X4- [Market Capitalization / Total Liabilities]
X5- [Sales / Total Assets]

1) Mannapuram
1. About Mannapuram
It is one of the leading gold financing companies in India with a long
operating history and loyal customer base.
The company has a track record of successfully raising capital from a
variety of sources. They have received private equity financing from
affiliates of AA Development Capital India Fund LLC, Hudson Equity
Holdings Limited, GHIOF Mauritius, Nambe Investment Holdings, Beaver
Investment Holdings, Baring India Private Equity Fund II Limited, Baring
India Private Equity Fund III Listed Investments Limited and BRIC II
Mauritius Trading.
The company had a capital adequacy ratio of 26.01%, 22.67%, 23.38%
and 29.13% as of September 30, 2013, March 31, 2013, 2012 and 2011,
respectively.
The company had an investment grade rating from approved credit rating
agencies since 1995. Our current rating is A+ /Negative from CRISIL for
an amount ` 3,000 million.

2. Bond Offerings
Investors had the following options available at the time of
subscribing to the issue:

3. Character
Manappuram's NCDs are rated A+ negative by CRISIL, A+ Negative by
ICRA and A+ by CARE. A+ ratings signify that the company's capacity to
repay debt is good but the negative sign denotes that the company's
financials could deteriorate further. Manappuram's ratings were
downgraded by Care (from AA- to A+) in February 2012 and by CRISIL
(from stable to negative) in August 2012. ICRA too lowered its ratings in
April 2013.
4. Capacity
Year
2015

Amount in Rs

EBITDA

1,338.98

Interest
Ratio of
Interest
to
EBITDA

873.67

1.53

5. Conditions
Coverage
Ratio for
2015

Ratio

Description

Interest
Coverage
Ratio

(Profit before Depreciation,

Interest and Tax/Interest
1.47 Cost)

Debt
Coverage
Ratio

(Profit before Depreciation,

Interest and Tax/Finance
1.53 Cost)

Liquidity
Ratio for
2015

Ratio

Description

Debt Equity
Ratio

2.61 (Total Debt/Total Equity)

Current
Ratio

(Current Assets/Current
0.87 Liabilities)

6. Altman Z Score
PARTICULARS

In crores

Current Assets

10,406.60

Current Liabilities

6,619.50

Working Capital

3,787.10

Total Assets

10,838.50

Retained Earnings

246.90

Sales
Market Value of
Equity

2,100.50

Total Liab

8,346.80

20,735.00

EBIT

343.02

Z-SCORE

2.24

2) National Thermal Power Corporation Limited

1. About NTPC
NTPC is Indias largest energy conglomerate with roots planted way back
in 1975 to accelerate power development in India. Since then it has
established itself as the dominant power major with presence in the entire
value chain of the power generation business.
NTPC became a Maharatna company in May 2010, one of the only four
companies to be awarded this status.
2. Bond Offerings
To finance new and ongoing schemes of expansion, NTPC has made
various issues of Bonds on both Public and Private Placement basis from
time to time. In fact, NTPC has been a fore-runner in the issue of Bonds by
the Indian Public Sector and the first issue was made in 1986. All the
issues made by NTPC have been very well received by the public and
institutions.
NTPC currently has 46 types of outstanding bonds.
3. Character
The bonds are listed on BSE and NSE. "[ICRA] AAA (Stable)" and "AAA"
are the credit ratings assigned to the bond by ICRA & CRISIL respectively.
A. K. Capital Services Limited, Axis Capital Limited, ICICI Securities
Limited, Kotak Mahindra Capital Company Limited and SBI Capital Markets
Limited will be the lead managers to the issue.
4. Capacity
Year
2015

Amount in Rs

EBITDA

20,466.27

Interest

2,406.59

Ratio of
Interest
to
EBITDA

8.50

5. Conditions
Coverage
Ratio for
2015

Ratio

Description

Interest
Coverage
Ratio

(Profit before Depreciation,

Interest and Tax/Interest
6.78 Cost)

Debt
Coverage
Ratio

(Profit before Depreciation,

Interest and Tax/Finance
8.5 Cost)

Liquidity
Ratio for
2015

Ratio

Description

Debt Equity
Ratio

0.73 (Total Debt/Total Equity)

Current
Ratio

(Current Assets/Current
1.69 Liabilities)

6. Altman Z Score
PARTICULARS

In
crores

Current Assets

44,386.40

Current Liabilities

29,659.90

Working Capital

14,726.50

Total Assets
Retained Earnings

2,00,039.
90

6,754.00
Sales

78,921.66

Market Value of
Equity

10,59,542
.17

Total Liab

2,00,039.
90

EBIT
Z-SCORE

17,688.83
4.00

3) Shriram City Union Finance Limited

1. About Shriram City Union Finance
Shriram City Union Finance (Shriram City) was established in 1986,
and is part of the three decade-old Shriram Group. The company is
in the business of lending and financing mainly two-wheelers and
consumer goods. It also has a book of personal loans and gold loans
for individuals and small enterprises.
2. Bond Offerings

3. Character

Instrument
Short-Term
Programme

Debt

Long-Term
Programme

Debt

Subordinated

Debt

CARE
RATINGS

INDIA
RATINGS

CRISIL

A1+

A1+

A1+

AA+

AA / Stable

AA /Stable

AA+

AA -

Programme

/Stable

4. Capacity
Year
2015

Amount in Rs

EBITDA

2,226.90

Interest
Ratio of
Interest
to
EBITDA

1,343.50

1.66

5. Conditions
Coverage
Ratio for
2015

Ratio

Description

Interest
Coverage
Ratio

(Profit before Depreciation,

Interest and Tax/Interest
1.63 Cost)

Debt
Coverage
Ratio

(Profit before Depreciation,

Interest and Tax/Finance
1.66 Cost)

Liquidity
Ratio for
2015
Debt Equity
Ratio
Current
Ratio

Ratio

Description

2.17 (Total Debt/Total Equity)

(Current Assets/Current
2.3 Liabilities)

6. Altman Z Score

PARTICULARS

In crores

Current Assets

12,400.81

Current Liabilities

5,237.59

Working Capital

7,163.22

Total Assets

16,186.71

Retained Earnings

960.65

Sales
Market Value of
Equity

3,071.47

Total Liab

16,186.71

EBIT

795.57

Z-SCORE

1.35

10,390.56

4) National Hydroelectric Power Corporation

1. About the company:
NHPC has raised Rs 1,475 crore by issuing long-term bonds through
private placement in 2015. Issue of NHPC 'T' Series Bond at a
coupon rate of 8.50 percent opened on July 14, 2015
NHPC had reported a net profit of Rs 644.51 crore for the JanuaryMarch quarter mainly on account of higher power generation as
compared to net loss of Rs 707.4 crore in the year-ago period.
2. Bond Offerings

Bonds
Tenure
Interest
Payable
Coupon rates
(Retail
Investors)
Coupon rates
(Other
Investors)
Equivalent
Effective
Taxable Yield
(30.90% Tax
bracket)
Equivalent
Effective
Taxable Yield
(20.60% Tax
bracket)
Equivalent
Effective
Taxable Yield
(10.30% Tax
bracket)

NHPC
series
1
10
Annuall
y
8.43%

NHPC
series 2

NHPC
series 3

NHPC
series 4

NHPC
series 5

NHPC
series 6

15
Annually

20
Annually

10
Annually

15
Annually

20
Annually

8.79%

8.92%

8.43%

8.79%

8.92%

8.18%

8.54%

8.67%

8.18

8.54

8.67

12.20%

12.72%

12.91%

12.20%

12.72%

12.91%

10.62%

11.07%

11.23%

10.62%

11.07%

11.23%

9.40%

9.80%

9.94%

9.40%

9.80%

9.94%

3. Character
CRISIL AA+/Stable rated.

4. Capacity
Year
2015

Amount in Rs

EBITDA

4,319.41

Interest
Ratio of
Interest
to
EBITDA

1,022.40

4.22

5. Conditions
Coverage
Ratio for
2015

Ratio

Description

Interest
Coverage
Ratio

(Profit before Depreciation,

Interest and Tax/Interest
3.04 Cost)

Debt
Coverage
Ratio

(Profit before Depreciation,

Interest and Tax/Finance
4.22 Cost)

Liquidity
Ratio for
2015

Ratio

Description

Debt Equity
Ratio

0.71 (Total Debt/Total Equity)

Current
Ratio

(Current Assets/Current
1.37 Liabilities)

6. Altman Z Score

PARTICULARS

In
crores

Current Assets

11,024.1
6

Current Liabilities
Working Capital

3,138.71

7,885.45
Total Assets

53,976.0
0

Retained Earnings

7,793.00

Sales

5,537.04

Market Value of
Equity

2,02,593.
30

Total Liab

53,976.0
0

EBIT

2,605.46

Z-SCORE

2.89

Conclusion
Name of Company

Z-SCORE

Manappuram

2.24

NTPC
Shriram City Union
Finance Limited

4.00
1.35

NHPC

2.89

When analyzing the Altman Z-Score of a company, the lower the value, the higher the odds
that the company is headed toward bankruptcy. Altman came up with the following rules
for interpreting a firms Z-Score:

Below 1.8 indicates a firm is headed for bankruptcy;

Above 3.0 indicates a firm is unlikely to enter bankruptcy; and

Between 1.8 and 3.0 is a statistical gray area.

NTPC would be the best buy due to the following reasons:

It has a high Z score so it is very unlikely to enter bankruptcy.

It has high coverage ratio so it has good repayment capacity so it is unlikely to default
on interest payments.

Rating system of Standard and Poors

Credit ratings are opinions about credit risk published by a rating agency. They express
opinions about the ability and willingness of an issuer, such as a corporation, state or city
government, to meet its financial obligations in accordance with the terms of those
obligations. Credit ratings are also opinions about the credit quality of an issue, such as a
bond or other debt obligation, and the relative likelihood that it may default.
Standard & Poors typically expresses its opinion of creditworthiness in terms of three
components:

The long-term rating

The outlook on the long-term rating

The short-term rating, where applicable

Analytical factors/ parameters considered in determining these ratings:

Rating Type
Issuer Ratings

Principal Analytical Considerations

For Corporate Issuers

Current opinion of an entitys

overall creditworthinessits ability
and willingness to repay its financial
obligations

Credit risk assessment of issuer as a

whole, but not of a specific debt issue

Business risk profile: Country risk,

industry condition, competitive position,
business and geographic diversification,
management, regulatory environment and
strategy
Financial risk profile: Capitalization,
leverage, earnings, funding, liquidity,
cash flow, risk management, and
accounting

Other factors specific to the type of

entity or its industry sector
For Government Issuers

Issue Ratings

Opinion of the credit quality of a

specific financial obligation and
issuers willingness and capacity to pay
in accordance with term

Political stability and pressures

Economic structure and growth

prospects

Wealth and demographics

Budgetary performance

Debt burden and management

For Corporate and Government Issues

Credit risk of the issuer

The terms and conditions of the debt

security and, if relevant, its legal structure

The relative seniority of the issue

with regard to the issuers other debt

issues and priority of repayment in the

event of default

The existence of external support or

credit enhancements, such as letters of
credit, guarantees, insurance, and
collateral. These protections can provide a
cushion that limits the potential credit
risks associated with a particular issue