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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 10.00 | ACUITE A- | CE | Stable | Assigned | Provisional To Final | - |
| Bank Loan Ratings | 100.00 | ACUITE BBB | Stable | Assigned | - |
| Bank Loan Ratings | 40.00 | ACUITE BBB | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 150.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has assigned the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B)' on the Rs. 100.00 Crore proposed bank facilities of Akara Capital Advisors Private Limited (ACAPL). The outlook is ‘Stable’.
Acuité has converted from provisional to final the long-term rating of ‘ACUITE A- (CE)’ (read as ACUITE A minus (Credit Enhancement)) on the Rs.10.00 Cr. partially credit enhanced term loan facility of of Akara Capital Advisors Private Limited (ACAPL). The outlook is ‘Stable’. Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B)' on the Rs. 40.00 Crore proposed bank facilities of Akara Capital Advisors Private Limited (ACAPL). The outlook is ‘Stable’. The rating of the instruments factors in improved capital position of ACAPL with networth and CAR of Rs. 298.63 Cr. and 46.11% respectively as on June 30, 2022 supported by capital infusion from its parent company at regular intervals. Pursuant to the infusion, ACAPL has significantly scaled up its operations with disbursals of about Rs.1200.73 Cr. for FY2022. Further, at consolidated level, though MTPL’s (Parent entity of ACAPL) earnings quality continues to remain modest with losses of Rs.22.09 Cr. as on FY2022. The rating continues to reflect the experienced promoters that have helped to build scalable business model with technology driven digital lending platform that leverages various rule based scoring engines that are used to aid the decision-making process during the life cycle of the customer. The rating also factors in with demonstrated ability to raise funds at parent entity level with last capital infusion of ~$50 million from a clutch of investors including Uncorrelated Ventures, Positive Moves, Fasanara Investments, Uncorrelated Ventures and other indivudual investors during FY2022 and Q1FY23. These strengths are partially offset by moderate scale of operations, modest credit profile and subdued asset quality. The ratings factors in modest earnings profile at consolidated level. At consolidated level, MTPL reported losses of Rs.22.09 crore during FY22 [FY21 losses: Rs.17.43 crore] on account of decline in disbursals during FY21 coupled with high operating expenses. Though Acuité takes notes of the asset quality improvement with 30 dpd+ and 90dpd+ declining to 14.43% and 3.70% respectively as on March 31, 2022 as against 27.20% and 10.11% respectively as on March 31, 2021, it believes the ability of ACAPL to contain asset quality risks through efficient underwriting and collection given the inherent nature of the portfolio and evolving data analytics and machine learning will be crucial. Additionally, Acuité believes the ability of ACAPL to profitably scale up its portfolio while maintaining robustness of its technology platform given the evolving nature of FinTech model is also a monitorable. The Rs 10.00 Cr transaction has a PCE in the form of unconditional, irrevocable, payable on demand guarantee by Northern Arc covering 18 percent of the issue size of the facility. The level of guarantee as a percentage of the aggregate outstanding principal of the issuance is, however, capped at 30 percent. If due to the amortization of the facility, the credit enhancement percent exceeds 30 percent of the aggregate outstanding principal of the issuance, the Guarantee Cap shall be reduced to 30 percent of the aggregate outstanding principal of the issuance (Revised Guarantee Cap). The final rating is assigned based on the fulfilment of the structure, terms and covenants detailed in the executed trust deed, deed of guarantee, legal opinion, debenture trust agreement, deed of hypothecation and other documents relevant to the transaction. |
| About the Company |
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Incorporated in 2016, Akara Capital Advisors Private Limited (ACAPL) is a Delhi based Nondeposit taking NBFC (ND-NBFC) registered with RBI effective 2017. ACAPL is promoted by Mr. Tushar Aggarwal and Mrs. Shruti Aggarwal, who collectively have over two decades of experience in financial services. ACAPL is engaged in lending customized personal loan products ranging Rs.0.01 lacs to Rs.5 lacs, primarily to salaried customer segment. The company is originating and disbursing loan through ‘Stashfin’, a platform developed and operated by group company, EQX Analytics Private Limited (EAPL). The company’s AUM stood at Rs.605.15 Cr. as on June 2022, comprising of owned portfolio of Rs.532.99 Cr. and off-book exposure of Rs.72.16 Cr.
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| About the Group |
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Morus Technologies Pte Limited (MTPL) is a Singapore based company that commenced its operations in 2017 and is engaged in providing lending and tech services through its subsidiaries, ACAPL and EAPL respectively. MTPL is promoted by promoted by Mr. Tushar Aggarwal and Mr. Parikshit Chitalkar and is backed by investors like Tencent Cloud Europe BV and Uncorrelated Ventures and senior investment professionals of KKR.
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| About the Guarantor |
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Northern Arc, previously known as IFMR Capital Finance Ltd., is a Non-Deposit taking NonBanking Financial Company (ND-NBFC) incorporated in 1989. It is involved in the placement (arranging funding for its clients via loan syndication, securitisation and assignment among others) and lending business. The company acts as a link between mainstream capital markets investors and highquality last mile lending institutions and businesses. The company’s business is categorized as finance sector exposure, i.e., microfinance, affordable housing finance, commercial vehicle finance, consumer finance, agri-finance and small business loans, and non-finance sector exposure, i.e., mid-market finance and corporates.
Northern Arc reported Assets Under Management (AUM) of Rs. 6874 Cr. as on March 31, 2022 as against Rs. 5,220.87 Cr. as on March 31, 2021. Northern Arc’s asset quality improved with GNPA (90+dpd) at 0.51% as on March 31, 2022 as against 2.23% as on March 31, 2021. The company’s Profit After Tax (PAT) stood at Rs. 163.73 Cr for the period ending FY2022 (Rs. 67.51 Cr as of FY2021). The company’s debt/equity ratio was 2.53 times as on March 31, 2021 as compared to 1.96 times as on March 31, 2020. However, the debt/equity ratio increased to 3.50 times as on March 31, 2022. |
Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuité has considered the consolidated business and financial risk profile of the Morus Technologies Pte Limited (MTPL) to arrive at this rating. This approach is in view of capital support from the interlinkages between tech businesses (‘Stashfin’ app, owned by EQX Analytics Private Limited (EAPL)), MTPL (capital support & holding company) and the NBFC lending arm (ACAPL).
Standalone rating considered for the PCE transaction of Rs 10.00 Cr: ACUITE BBB/Stable |
Key Rating Drivers
| Strength |
| Strength of underlying structure
The Rs 10.00 Cr transaction has a PCE in the form of unconditional, irrevocable, payable on demand guarantee by Northern Arc covering 18 percent of the issue size of issuance. The level of guarantee as a percentage of the aggregate outstanding principal of the is, however, capped at 30 percent. If due to the amortization of the facility, the credit enhancement percent exceeds 30 percent of the aggregate outstanding principal of the facility, the Guarantee Cap shall be reduced to 30 percent of the aggregate outstanding principal of the facility (Revised Guarantee Cap). ACAPL shall make payments of interest and principal amounts due along with all other obligations (if any) under the Transaction Document on T-5 business days. In the event of failure of the Issuer to comply, on T-4 Business Days, the Trustee shall invoke the PCE and the credit enhancement shall be dipped on T-1 Business days. The facility shall be secured by way of a first ranking, exclusive and continuing charge on identified receivables. The Hypothecated Receivables shall at all times be equal to the value of 1.1 times the outstanding amounts of the facility. In case of Issuer rating (as per Rating Agency’s view) downgrade to below BB+, the Borrower will ensure that the percentage of outstanding principal value of PAR > 0 loans in the hypothecated pool does not exceed 10 percent of the outstanding principal value of the hypothecated pool. Acuité believes that the structure provides adequate covenants to safeguard the interest of the investors. Experienced promoters coupled with demonstrated fund raising ability MTPL, the holding company of ACAPL, is promoted by Mr. Tushar Aggarwal (Co-founder and CEO) and Mr. Parikshit Chitalkar (Co-founder and CTO). Mr. Tushar Aggarwal has over fifteen years of experience in Investment Banking and Private Equity and was previously associated with Goldman Sachs, Lehman Brothers, General Atlantic and Everstone and Mr. Parikshit Chitalkar has over fifteen years of experience in Product Development, Risk Management, Technology and Data Analytics. MTPL provides lending through its NBFC arm, ACAPL and offers data-driven lending platform (‘Stashfin’) through EAPL that facilitates lending from NBFCs (including ACAPL) . MTPL has cumulatively raised ~$96 million (FY2020: $5 million, FY2021: $40 million, FY2022: $22 million, Q1FY23: $29 million) since inception with most recent capital infusion in June 2022. This capital has raised from promoters and investors including Tencent Cloud Europe B.V, Uncorrelated Ventures and senior investment professionals from KKR along with other individual investors. The board of MTPL comprises five directors including promoters and representation from three shareholder directors. Acuité believes the business risk profile of MTPL will benefit from the support from the promoters as well as the investors. Comfortable Capitalsation and gearing At consolidated level, MTPL's networth stood at about Rs.481.18 Cr. with a gearing of 1.17 times as on June 30, 2022. The capitalisation levels is supported by capital infusion of $96 million till date, significant portion of which has been down streamed into ACAPL at regular intervals. Consequently, networth of ACAPL stood at Rs.298.63 Cr. translating into a CAR (comprising only Tier I) and gearing of 46.11% and 1.05 times respectively as on June 30, 2022 (55.10% and 0.62 times as on March 31, 2021). Comfortable capitalization and gearing levels provide adequate headroom to ACAPL to pursue its growth strategy and also adequate cushion to absorb asset quality shocks given the unsecured nature of portfolio. Acuité expects MTPL's capital structure and business to continue to benefit from fund raising ability from investors. Technology driven scalable business mode ACAPL follows digital lending model with majority of credit underwriting process performed digitally over in-house technology platform “Stashfin”, owned by a group entity, EAPL which leverages self-learning algorithm. Further, the platform’s risk management system tracks deviations, monitors portfolio and gives early warning signals. This enables the company to achieve scalability in business at a faster pace with well-defined risk and rule engines continuously monitoring asset quality metrics. At platform level, the cumulative disbursements since inception till June 2022 stood about Rs.2,115 Cr. |
| Weakness |
| Moderate scale of operations with asset quality a monitorable
ACAPL commenced its operations in 2017 in and its Assets Under Management (AUM includes on book and off book exposure) has grown to Rs.558.89 Cr. as on March 31, 2022 from ~Rs.114 Cr. as on March 31, 2021 (~Rs.160 Cr. as on March 31, 2020). The portfolio declined in FY2021 on account of lower disbursals of Rs.172 Cr. (FY2020: Rs.330 Cr.) mainly due to pandemic induced stress. However, capital infusion from MTPL coupled with funding from multiple FIs aided in higher disbursals (FY2022: Rs.1200.73 Cr.) thereby driving growth in AUM to ~Rs.558.89 Cr. as on June 2022. On the asset quality front, Acuité notes the improvement with 30 dpd+ and 90dpd+ declining to 14.43% and 3.70% respectively as on March 31, 2022 as against 27.20% and 10.11% respectively as on March 31, 2021. The collection efficiency (current month basis) for May, June and July 2022 stood at 79.42%, 79.91% and 79.39% respectively. While Acuité notes the initiatives being undertaken by ACAPL to ramp up its collection capabilities which is expected to drive up the collection efficiency, it believes the ability of the company to contain asset quality risks through efficient underwriting and collection given the inherent nature of the portfolio and evolving data analytics and machine learning will be crucial. Modest earnings profile At consolidated level, MTPL reported modest earnings quality with losses of Rs.22.09 Cr. for FY2022 (Rs.17.4 Cr. for the FY2021). These losses are mainly on account of lower disbursals during FY2021 coupled with elevated operating expenses as a result of high initial operational set up with ramping up of both the lending (ACAPL) and technology businesses (EAPL). Further, high credit costs too attributed to subdued profitability. At standalone level, ACAPL reported profits of Rs.4.32 Cr. during FY2022 as against Rs.1.84 Cr. during FY2021 (Rs.0.84 Cr. during FY2020). The improvement is primarily driven by notable positive traction in the disbursals resulting in higher NII of Rs.25.07 Cr. during FY2022 as against Rs.15.73 Cr. during FY2021 (Rs..45.46 Cr. during FY2020). While Acuité takes note of uptick in disbursals in recent quarters and its favorable impact on the profitability metrics, it believes the ability of MTPL to control credit costs and increase operational efficiencies as it continues to scale its lending portfolio will be key monitorable. Evolving nature of fintech business model; technology and regulatory risks Given that the digital lending particularly in B2C segment is evolving and innovative technology is the backbone of ntech business model, the company is exposed to technology risks encompassing data security, privacy and technology failure. Since all the business functions including data storage, disbursals and collections is done digitally, any breach shall expose the company to cyber events and liabilities arising thereon. Also, the company is also exposed to evolving regulatory developments given that the fintech business model is at nascent stage. |
| Assessment of Adequacy of Credit Enhancement |
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ACAPL has moderate experience in the unsecured personal loan and its capital position has been bolstered by capital infusions. Thus, even after considering risks such as possible asset quality deterioration, Acuité believes that the credit enhancement will stand adequate in all scenarios and in the event of any requirement, Northern Arc will provide the necessary support.
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| ESG Factors Relevant for Rating |
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ACAPL belongs to the NBFC sector which continues to complement the efforts of banks in enhancing small ticket retail lending in India. Some of the material governance issues for the financial services sector are policies and practices with regard to business ethics, board diversity and independence, compensation structure for board and KMPs, role of the audit committee and shareholders’ rights. On the social aspect, some of the critical issues for the sector are the contributions to financial inclusion and community development, responsible financing including environmentally friendly projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks. The entity has made adequate disclosures regarding its policies on related party transactions. It also adheres to Reserve Bank of India’s Fair Practices Code and has the necessary interest rate and grievance redressal policies. MTPL's board of directors consist of 5 directors. ACAPL provides personal loans through the 'Stashfin' platform. They aim to make credit highly accessible to the salaried and self-employed segment through adoption of technology.
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| Rating Sensitivity |
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| Material Covenants |
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ACAPL is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality among others.
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| Liquidity Position |
| Adequate |
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ACAPL reported adequate liquidity profile as on June 30, 2022 with no negative cumulative mismatches in near to medium term. Unencumbered cash and cash equivalents stood at Rs.13.46 crore as on June 30, 2022 on a standalone level and its debt obligations stood at Rs.173.37 Cr. for 6 months starting June 2022, while collections at Rs.246.72 Cr. in the same period.
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| Outlook |
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Acuité believes that MTPL will maintain ‘Stable’ outlook over the near to medium term on account of support from expereineced promoters and comfortable capitlsiation levels. The outlook may be revised to ‘Positive’ in case MTPL demonstrates significant and sustainable growth in its scale of operations while improving profitabiity and mitigating asset quality risks. Conversely, the outlook may be revised to ‘Negative’ in case of any challenges in scaling up operations or in case of any sharp deterioration in asset quality and profitability levels.
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| Other Factors affecting Rating |
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Not applicable
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| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
*Total income equals to Net Interest Income plus other income
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| Key Financials (Consolidated) | ||||||||||||||||||||||||||||||||
*Total income equals to Net Interest Income plus other income.
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| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any Other Information |
| Not applicable |
| Applicable Criteria |
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| Note on Complexity Levels of the Rated Instrument |
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