• Experienced management, team driving portfolio growth at AFPL

Ambit Finvest Private Limited (AFPL) is led by Mr. Sanjay Sakhuja (Executive chairman) who has been associated with the Ambit group since 2003. Mr. Sakhuja is supported experienced professional team comprising Mr. Sanjay Agarwal (CEO), Mr. Vikrant Narang (Deputy CEO) and Mr. Sanjay Dhoka (COO & CFO). Mr. Sanjay Agarwal heads the SME lending operations and has over two decades of experience in SME lending segment. The board also comprises independent directors Mr. K M Jayarao (ex Head – Global Credit Risk Management Group at ICICI Bank), Mr. Ameet Parikh and Ms. Shalini Kamath. The company also gains from expertise of senior advisor like Mr. Sunil Gulati (ex CRO at RBL Bank).
AFPL was a captive NBFC of Ambit Group till August 2018, having an exposure to mostly structured finance segment. However, post fund raising the company has changed its lending strategy whereby it is significantly expanding its SME portfolio and has curtailed structured finance. AFPL has demonstrated growth in its scale of operations by expanding its network of branches to 50 across 11 states. AFPL’s outstanding loan portfolio stood at Rs. 1,332.66 Cr. as on March 31, 2022 from Rs. 993.75 Cr. as on March 31, 2021. The loan portfolio further improved to Rs. 1,540.53 Cr. as on September 30, 2022. The growth in portfolio was on account of healthy disbursements in FY2022 & H1 FY2023 at around Rs. 976 Cr. and Rs. 646 Cr. respectively. AFPL’s loan portfolio of Rs. 1,540.53 Cr. comprised SME portfolio of Rs. 1,501.22 Cr. (97 percent of loan portfolio) and Structured Finance portfolio of Rs. 39.31 Cr. (3 percent of loan portfolio) as on September 30, 2022.
Acuité expects AFPL to maintain the growth momentum in its SME portfolio while diversifying its geographical reach.

• Funding from marquee investor, comfortable capitalization levels

AFPL’s networth stood at Rs. 668.02 Cr. as on March 31, 2022 (Rs. 641.32 Cr. as on March 31, 2021) and Rs. 619.80 as on March 31, 2020. During FY2020, Adar Poonawalla (CEO- Serum Institute of India) invested around Rs. 234.63 Cr. in AFPL for a 24.9 percent stake. The investment was done through affiliate companies namely Rising Sun Holdings Private Limited and Jeevadravya Bio-Pharma Private Limited. Post infusion and due to inherent risks in wholesale lending, the company has stopped structured lending and has been focusing on growing its SME and retail book. In addition to being high-yielding, SME and retail portfolio shall provide granularity to AFPL’s portfolio and help mitigate credit risk. The capitalization levels post equity infusion stood comfortable to support expansion plans of the company. AFPL’s Capital Adequacy Ratio (CAR) stood comfortable at 38.45 percent as on March 31, 2022 (56.92 percent as on March 31, 2021), the reduction in CAR is on account of healthy disbursement levels, resulting growth in AUM (Risk Weighted Assets). AFPL’s gearing stood at 1.61 times as on March 31, 2022 (0.79 times as on March 31, 2021). As on September 30, 2022 AFPL’s netwoth stood at Rs. 685.97 Cr. with a CAR of 34.07 percent.
Acuité believes that the company’s comfortable capitalization levels will support its growth plans over the medium term.
 

• Strong brand name and diversified business profile

Ambit Group is an established brand with presence in investment banking, institutional equities, asset management, global private client and SME lending businesses. Mr. Ashok Wadhwa is the Group Chief Executive Officer and founder of Ambit Group. He is recipient of several awards, including the Priyadarshini Academy award for outstanding contribution in the field of financial management. Within the investment banking segment, Ambit is consistently ranked amongst the top 10 M&A advisory firms in India. The group has advised over 160 transactions with announced deal value of USD 23.5 billion. Ambit has strategic business alliance with Daiwa Securities Group Inc., Japan for M&A advisory services in IndoJapan corridor and also has backing of QInvest to develop cross border M&A advisory services between MENA region and India. The group also caters to Mutual Fund, Insurance companies and FIIs.
Ambit Finvest Private Limited (AFPL) the NBFC arm of the Ambit Group has a presence in SME and retail lending segment. Ambit Private Ltd (APL), the holding company along with the senior management hold 75 percent stake in AFPL. It draws strength from common brand name, capital and management support. Over the last few years, AFPL has received funding support from the parent at regular intervals. It also benefits from operational synergies in the form of established corporate governance set up at group level and integration of support functions like accounting, finance, human resources.
Acuité believes, Ambit group’s established position in financial services and diversified fund based and non-fund based business operations will continue to support its business risk profile.
 

• Healthy Earnings Profile

At group level, the businesses can be categorized into fund based (comprising revenues from lending portfolio) which comprised ~37 percent of total FY2022 revenues and fee based (which includes Corporate Finance, Institutional Equities, Asset Management, Merchant Banking) which comprised ~63 percent of total FY2022 revenues, at around similar levels for FY2021. While fund based revenues at AFPL levels have grown during FY2021 and FY2022 on account of portfolio growth, fee based revenues during FY2020 declined on account of adverse market conditions and impairment in investment portfolio. On consolidated level as on March 31, 2020, Ambit Group reported losses of Rs. 32.91 Cr. on account of MTM losses of Rs. 35 Cr. on proprietary investments portfolio and dip in fee based income due to overall adverse market conditions. However, with the pickup in capital market activities during FY2021 and FY2022, the consolidated profits improved to Rs. 64.31 Cr and Rs 98.97 Cr respectively.
On standalone basis, AFPL’s profitability indicators were healthy marked by Net Interest Margin (NIM) which stood at 9.55 percent as on March 31, 2022 on the back of healthy disbursements in Q3 & Q4 FY2022 at ~Rs. 710 Cr. Return on Average Assets (RoAA) has marginally declined to 1.72 percent as on March 31, 2022 from 1.88 percent as on March 31, 2021 due to increase in operating costs. Similarly, Opex further increased to 5.63 percent as on March 31, 2022, from 5.20 percent as on March 31, 2021 on account of expansion of branch networks. Annualized Opex for H1 FY2023 remained high at 6.80 percent while NIM and RoAA marginally improved to 10.10 percent and 1.76 percent respectively.
Acuité believes the earning profile of Ambit Group from the non-fund based business operations would remain susceptible to inherent risks in capital market and overall economic environment, while its fund based business operations would continue to drive the group’s future growth trajectory.
 

• Relatively low seasoned portfolio; moderate asset quality

AFPL commenced its operations in structured finance business in 2011 and the company has stopped disbursements in this segment post equity infusion since March 2020. Further, AFPL commenced its SME lending operations after acquiring the SME portfolio from Finmax in September 2018 and would be focusing on the SME and Retail segment going forward. Loans offered under SME lending have an average tenure ranging between 1-3 years for unsecured loans and 10-15 years for secured loans. Unsecured loans comprise 20-25 percent of the total SME portfolio while rest are secured. The company’s loan book of Rs. 1,333 Cr. as on March 31, 2022 has grown significantly from Rs. 767Cr. as on March 31, 2019. Due to substantial growth in SME book in the last few years, ~ 85 percent of the overall portfolio had a seasoning of less than two years as on March 31, 2022.
The company has geographical concentration in states of Maharashtra, Delhi and Gujarat (incl. Head Office) with the same constituting 65 percent of o/s SME portfolio and significant presence in large urban centers. At branch level top 5 branches (incl. H.O) out of 50 contributed 64 percent of the o/s SME portfolio as on March 31, 2022. The same branches contributed 86 percent as on March 31, 2020. AFPL is making concentrated approach to diversify its geographical presence and has expanded its branch network from 35 branches as on March 31, 2021 to 50 branches as on March 31, 2022 and 65 branches as on September 30, 2022. Along with this, the company is also targeting penetration in Tier 1 and Tier 2 cities while adding newer products in its offerings. AFPL reported significant growth in portfolio while maintaining asset quality with on-time portfolio at 91.27 percent, gross non-performing asset (GNPA) at 2.67 percent and nonperforming asset (NPA) at 1.74 percent as on March 31, 2021. However, the on time portfolio as on March 31, 2022 stood at 89.68 percent while GNPA increased to 2.84 percent and NNPA at 1.77 percent. The decline in on-time portfolio and rise in softer bucket delinquencies was in account of difficulties faced by SME in the wake of pandemic. The rise in GNPA & NNPA numbers were also attributable to AFPL’s voluntary adoption of RBI’s Circular dated November 12, 2021 on classification of standard assets. AFPL had conservative outstanding ECL provisions of Rs. 32.38 Cr. as on March 31, 2022. As on September 30, 2022 on-time portfolio improved to 91.25 percent also GNPA & NNPA improved to 2.47 percent and 1.55 percent respectively.
Acuité believes that the company’s ability to maintain its asset quality given the low seasoned SME loan book and increased presence in the newer geographies will remain a key rating monitorable.