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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 20.00 | ACUITE BBB | Stable | Assigned | - |
| Bank Loan Ratings | 50.00 | ACUITE BBB | Stable | Downgraded | - |
| Non Convertible Debentures (NCD) | 165.00 | ACUITE BBB | Stable | Downgraded | - |
| Total Outstanding Quantum (Rs. Cr) | 235.00 | - | - |
| Rating Rationale |
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Acuité has assigned the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) on the Rs. 20.00 Cr. bank facilities of Ashv Finance Limited (AFL). The outlook is ‘Stable’.
Acuité has downgraded the long-term rating to ‘ACUITE BBB’ (read as ACUITE triple B) from ‘ACUITE BBB+’ (read as ACUITE triple B plus) on the Rs. 50.00 Cr. bank facilities of Ashv Finance Limited (AFL). The outlook is ‘Stable’. Acuité has downgraded the long-term rating to ‘ACUITE BBB’ (read as ACUITE triple B) from ‘ACUITE BBB+’ (read as ACUITE triple B plus) on the Rs. 165.00 Cr. Non-Convertible Debentures of Ashv Finance Limited (AFL). The outlook is ‘Stable’. Rationale for downgrade: The rating downgrade is on account of continuous pressure on the earnings profile of the company, deterioration in asset quality metrics and moderation in business volumes for Q1FY24. The PBT declined YoY to Rs. 1.70 Cr. for FY23 (FY22: Rs. 2.31 Cr.; FY21: Rs. 2.65 Cr.). For Q1FY24, the company reported losses of Rs. -12.81 Cr. (losses of Rs. 13.30 Cr. for Q2FY24). The RoAA (on-balance sheet assets) stood subdued at 0.60 percent for FY23 (FY22: 0.73 percent; FY21: 1.43 percent). The profitability remained constrained due to lower net interest margins as reflected by annualized margin of 8.48 percent for Q1FY24 (FY23: 10.05 percent; FY22: 10.15 percent). The credit costs as a percentage of loan book increased to 5.20 percent for FY23 from 1.70 percent for FY22. Additionally, the Gross NPA and PCR deteriorated to 4.36 percent and 76.45 percent as on Jun-23 from 3.48 percent and 82.70 percent as on Mar-23 respectively on account of slippages. The Q1FY24 disbursements stood low at Rs. 93.60 Cr. as compared to FY23 disbursements of Rs. 858.37 Cr. The AUM slightly moderated to 1,017.69 Cr. as on Jun-23 from 1,070.30 Cr. as on Mar-23. The ability of the company to contain its operating costs and achieve economies of scale with growth in book would be a key rating monitorable. The rating however continues to take into account the continuous support from the promoter Aavishkar Group by way of regular capital infusion and investment by marquee investors like Omidyar Network (ON) Mauritius, Developing World Markets and Triodos Investment Management. The rating further factors in the growth in portfolio from Rs. 727.89 crore as on March 2022 to Rs 1,070.3 crore as on March 2023 reflecting a YoY growth of 47 percent which is largely fueled by the strategy to concentrate on the small ticket sized business loans, thereby reducing the average ticket size from Rs. 1 Cr. in FY2019 to Rs. 0.08 Cr. in FY2023. Further, AFL has adequate capitalization levels at 20.75 percent with a tangible networth of Rs. 235.81 Cr. (excluding goodwill) as on March 31, 2023. |
| About the company |
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Incorporated in February 1998, Mumbai based Ashv Finance Ltd (AFL) is registered as non-deposit taking systemically important non-banking financial company. AFL is engaged in funding the MSME sector through various products both secured and unsecured financing. On October 08, 2020, the company had received the approval from Registrar of Companies for change in the name of the company from “Jain Sons Finlease Ltd” to “Ashv Finance Ltd”.
The company is promoted by the Aavishkaar group since 2011 which is focused on developing the impact ecosystem in the continents of Asia and Africa. The group is led by Mr. Vineet Rai who is the founder and Chairman of the group. The promoter group hold 61.97 percent of the equity shareholding in AFL as on March 31, 2023. The company started its lending operations in 2013 with venture-debt financing. In FY19, the revamping of the business model was done from venture debt financing to small ticket size business loan. AFL currently has customer presence in 20 states with a branch network of 36 branches as on March 31, 2023. |
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
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Acuité has considered standalone business and financial risk profile of AFL to arrive at the rating.
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Key Rating Drivers
| Strength |
| Support from promoter group coupled with experienced management
AFL is a part of the Aavishkaar Group which is focused on developing the impact ecosystem in the continents of Asia and Africa. As on March 2023, the Aavishkar Group holds 61.97 percent stake in the company. During FY2019 and FY2020, the promoter group collectively infused equity of Rs 150 crore demonstrating continuous support to the company. The Aavishkar group is led by Mr. Vineet Rai, founder and Chairman of the group, who is also on the board of AFL has more than 18 years of experience in financial industry. The company’s board is well represented by 2 Independent Directors and 3 Nominee Directors among total of 8 Directors having significant experience in finance domain. The key managerial personnel comprise of professionals with significant experience in financial industry. The company is also backed by marquee investors like Omidyar Network (ON) Mauritius, a philanthropic investment firm holding 12.58 percent stake; Triodos Investment Management, a wholly owned subsidiary of Triodos Bank, holding 9.8 percent stake and Developing World Markets, an asset manager and investment bank holding 7.87 percent stake in the company as on March 31, 2023. Acuité believes that continuous support from the promoter group and the marquee investor coupled with experienced management will be central to support the business risk profile of the company. Business growth driven by shift in lending towards small ticket MSME’s AFL's AUM grew from Rs. 727.89 crore as on March 2022 to Rs 1,070.3 crore as on March 2023 reflecting a YoY growth of 47 percent. The growth in business is largely driven by the strategy to concentrate on the small ticket sized business loans, thereby reducing the average ticket size from Rs. 1 Cr. in FY2019 to Rs. 0.08 Cr. in FY2023. The shift in granular portfolio has brought the share of business loans up to 96 percent of the AUM as on FY23 (P.Y: 89 percent). The company has adopted a hub and spoke model to increase its geographical penetration with total branch network of 36 and 182 spoke locations. In FY23, the company disbursed a total of Rs. 858.37 Cr. in FY23 (P.Y: Rs. 597.14 Cr.). The share of legacy book has reduced to 2.53 percent of the portfolio as on FY23 as against 10.28 percent as on FY22 hereby reducing the ongoing stress in the book to an extent. Adequate capital structure Acuité expects the capital structure to remain adequate over near to medium term. In FY23, the company has acquired the technology platform (Loan origination system) of its sister concern company i.e Tribe Tech to enhance its business distribution capabilities by the way of having an in-house loan origination system. The company has issued shares to its promoter group for the acquistion and reported a goodwill (intangible asset) of Rs. 103.57 Cr. AFL’s overall CAR stood at 20.75 percent as on March 31, 2023 (P.Y: 28.58 percent) consisting of Tier I CAR of 19.91 percent and Tier II CAR of 0.84 percent. The company’s capital structure is supported by a net worth and gearing of Rs. 235.81 crore (excluding goodwill arising from acquisition) and 3.51 times as on March 31, 2023, respectively. (Rs. 255.03 Crore and 2.42 times as on March 31, 2022). The company rasied debt to the tune of Rs. ~925 Cr. in FY23 including borrowings through securitization transactions which aided in disbursements and overall AUM growth. Further, with the increase in leverage, the company is in advanced stages for an equity infusion of Rs. ~150 Cr. in Q2FY24 from existing and new investors which stands critical to fuel its growth plans. Additionally, a diversified funding profile with an ability to mobilize low-cost funds which will be the key factor facilitating the business scalability. |
| Weakness |
| Moderate asset quality
The company's asset quality remained moderate as reflected by GNPA and NNPA of 3.48 percent and 1.35 percent as on FY23. AFL has written off loans to the tune of Rs. 40.07 Cr. in FY23, out of which ~54 percent of the loans were from the legacy book. The legacy book reduced to Rs. 27.07 Cr. as on March 31, 2023 with a provision cover of 67 percent. In spite of prudent write-off measures undertaken, the Gross NPA remained moderate due to additional slippages in the portfolio. The provisioning for Stage 3 assets stood at 61 percent as on March 31, 2023. The restructured portfolio remained at Rs. 13.13 crore as on March 31, 2023 (1.23 percent of the Total AUM), out of which, the portfolio restructured towards legacy book stood at Rs 9.78 Cr. (0.91 percent of the total AUM). Further, the Gross NPA and PCR deteriorated to 4.36 percent and 76.45 percent as on Jun-23 from 3.48 percent and 82.70 percent as on Mar-23 respectively on account of slippages. Going forward the performance of the legacy book, additional delinquencies from new book and the restructured book shall remain the key monitorable. Modest profitability metrics While the company has scaled up its loan portfolio steadily over the years from Rs. 316.81 Cr as on March 31, 2018 to Rs 1,070.30 Cr. as on March 31, 2023. The PBT declined YoY to Rs. 1.70 Cr. for FY23 (FY22: Rs. 2.31 Cr.; FY21: Rs. 2.65 Cr.). For Q1FY24, the company reported losses of Rs. -12.81 Cr. The RoAA (on-balance sheet assets) stood subdued at 0.60 percent for FY23 (FY22: 0.73 percent; FY21: 1.43 percent). The profitability remained constrained due to lower net interest margins as reflected by annualized margin of 8.48 percent for Q1FY24 (FY23: 10.05 percent; FY22: 10.15 percent). The credit costs as a percentage of loan book increased to 5.20 percent for FY23 from 1.70 percent for FY22. Going forward, any incremental increase in slippages from new book and legacy book will have a bearing on the credit costs, ultimately affecting the profitability of the company. Acuité believes, the ability of the company to achieve economies of scale and improve profitability while maintaining asset quality will be crucial to the credit profile. |
| ESG Factors Relevant for Rating |
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Ashv Finance Limited (AFL) belongs to the NBFC sector which complements bank 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. AFL’s aims to provide funding to underbanked MSMEs that have a potential for growth. The company provides collateral-free, flexible financing for small businesses with the intent to assist their growth. It is important for AFL to assess the sustainability factors and the ESG practices followed by the larger borrowers in its lending portfolio. Financial inclusion being the core of its lending operations, AFL aims to create a social impact in the area of community support and development. AFL has adequate policies for business ethics and CSR. The entity also has corporate governance policies on whistle-blower programme, related party transactions and vigil mechanism. AFL also maintains transparency in terms of disclosures pertaining to interest rate policy and adheres to the Fair Practice Code as disseminated by Reserve Bank of India's circular. The NBFC also maintains high level of transparency by way of disclosures regarding functioning of its board. AFL’s board is adequately diverse with 3 women directors and 2 independent directors out of a total of 8 board of directors.
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| Rating Sensitivity |
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| All Covenants |
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AFL 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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AFL’s overall liquidity profile remains adequate with no negative cumulative mismatches in near to medium term as per ALM dated Jun 30, 2023. The company’s liquidity position is supported by cash and bank balance of Rs. 31.46 Cr as on Jun 30, 2023. Future liquidity position will hinge upon the company’s ability to raise resources while continuing to achieve optimal portfolio collections.
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| Outlook: Stable |
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Acuité believes that AFL will maintain a ‘Stable’ outlook over the near to medium term owing to the experienced management with support of the promoter group and marquee investors and adequate capitalization buffers. The outlook may be revised to ‘Positive’ in case of significant and sustainable growth in AUM while maintaining asset quality and improved profitability. Conversely, the outlook may be revised to ‘Negative’ in case of significantly higher than expected pressures on asset quality or profitability as well as any delay in capital raising plans.
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| Other Factors affecting Rating |
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None
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| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||||||||||||
**Total income equals to Net Interest Income plus other income **Tangible networth excluding goodwill |
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| Status of non-cooperation with previous CRA (if applicable): |
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Not Applicable
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| Any other information |
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None
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| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Banks And Financial Institutions: https://www.acuite.in/view-rating-criteria-45.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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