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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 43.16 | ACUITE BBB | Stable | Upgraded | - |
| Total Outstanding Quantum (Rs. Cr) | 43.16 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has upgraded the long-term rating to ‘ACUITE BBB’ (read as ACUITE triple B) from ‘ACUITE BB’ (read as ACUITE double B) to the Rs. 43.16 crore bank facilities of Digamber Capfin Limited (DCL). The outlook is 'Stable'. |
| About the company |
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DCL, incorporated in 1995, is a Rajasthan based Non-Banking Financial Company- Microfinance Institution (NBFC - MFI). DCL is promoted by Mr. Rajiv Jain & Mr. Amit Jain. It offers credit and other financial products to the rural and semi- urban areas. It lends under joint liability group (JLG) model and also provides loans to individual people.
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| Analytical Approach |
| Acuité has considered the standalone financial and business risk profiles of DCL to arrive at the rating. |
Key Rating Drivers
| Strength |
| Experienced Management & Growth in AUM
Digamber Capfin Ltd (DCL) started operations in 1995 as an NBFC with the objective of providing a range of financial services to the unbanked population. The company is promoted by Mr. Rajiv Jain (Managing Director) who has more than 25 years of experience in the field of finance, on the board of directors he is supported by Mr. Amit Jain (Whole time Director & CFO) and other board members who have extensive experience in the field of banking & finance. The company’s Asset under Management (AUM) has increased to Rs. 1,001.57 Cr as on March 31, 2022 from Rs. 746.78 Cr as on March 31, 2021. The AUM stood at Rs. 1059.94 Cr as on September 30, 2022. The JLG segment constitutes ~99 of the loan portfolio and the rest is towards Individual Micro Loans (IML). The loans have an average tenure of 25 to 30 months. Acuité believes that DCL’s business profile will continue to benefit from the established presence in microfinance lending backed by strong promoter support. Robust earnings profile In FY2022, DCL’s loan portfolio has grown owing healthy disbursement levels. The company’s disbursements increased to Rs. 745.69 Cr as on March 31, 2022 from Rs. 484.49 Cr as on March 31, 2021. The company’s overall financial profile continues to be robust as marked by increase in its Net interest income to Rs. 147.30 Cr for FY2022 from Rs. 135.89 Cr for FY2021. DCL reported a PAT of Rs 42.08 Cr in FY2022 as compared to Rs. 50.97 Cr during FY2021. For H1FY23, the PAT stood at Rs. 29.84 Cr. The healthy bottom-line has resulted into comfortable profitability metrics, RoTA (Return on Total Assets) and RoAA (Return on Average Assets) stood at 4.34 percent and 4.80 percent for FY2022, respectively. Acuite believes that going forward ability of the company to grow its loan portfolio while improving its profitability will be key monitorable Healthy capitalisation levels along with diversified funding mix DCL’s capitalisation remain healthy marked by networth of Rs. 226.44 Cr. as on September 30, 2022(Provisional) as compared to Rs. 154.68 Cr. as on March 31, 2021. The company reported a capital adequacy ratio (CAR) of 24.64 percent comprising Tier 1 capital at 21.36 percent and Tier II capital at 3.27 percent as on March 31, 2022. The company has a strong lender profile comprising Banks and Financial Institutions, with total debt increasing to Rs. 791.89 Cr. outstanding as on June 30, 2022. DCL’s borrowing profile comprised Term loans, NCD’s and ODs from PSU banks like State Bank of India, UCO Bank, Indian Bank, Union Bank of India and other NBFCs & Fis on June 30, 2022. DCL has demonstrated access to funding from both PSU banks and large NBFC/Fis. SML raised fresh debt of ~Rs.853 Cr. from various lenders in FY2022. And the company has raised debt of Rs. 305 Cr as on November 2022. |
| Weakness |
| Modest Asset Quality; Albeit Improving
DCL reported modest asset quality as reflected in on-time portfolio at 92.20 percent as on September 30, 2022 (97 percent as on March 31, 2022) and overall collection efficiency at ~60 percent for September 2022. Given the risks inherent to microfinance segment, a surge in the delinquencies has been observed, the company reported GNPA at 3.32 percent as on September 30, 2022, as against 1.86 percent as on March 31, 2022. (1.27 percent as on March 31, 2021). The company has made Impairment loss allowance of Rs. 25.59 Cr. as on March 31, 2022. Prudent risk management practices and digital collections mechanism are followed by the company in its operating area which enables smooth collections. Acuité believes, going forward, the ability of the company to maintain asset quality in the light of continuously evolving economic scenario will be a key monitorable. Susceptibility to risks inherent to microfinance segment DCL primarily extends unsecured loans to economically challenged borrowers who have limited ability to absorb income shocks. Since financial assistance to economic challenged borrowers is a sensitive issue, from government stand point the regulatory dispensation in respect of the policies becomes relevant. Any changes in the regulatory environment impeding the ability of entities like DCL to enforce collections, etc will have an impact on its operational performance. Besides the regulatory risks, the inherent nature of the business renders the portfolios vulnerable to event risks such as natural calamities in the area of operations. Acuité believes that containing additional slippages while maintaining the growth in the loan portfolio will be crucial. |
| ESG Factors Relevant for Rating |
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Digamber Capfin Limited (DCL) belongs to the Non-Banking Financial Companies (NBFC) sector which complements bank lending in India. Some of the material governance issues for the sector are policies and practices with regards 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, sustainable financing including environmentally friendly projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks.
DCL was primarily engaged in extending offers credit and other financial products to the rural and semi- urban areas. It lends under joint liability group (JLG) model and also provides loans to individual people which supports financial inclusion by financing of smaller businesses. The company is promoted by Mr. Rajiv Jain (Managin Director), he is supported by Mr. Amit Jain (Whole time Director cum CFO) and 2 Independent Directors, 1 Nominee Director & 2 Non-Executive Directors. The company maintains adequate disclosures with respect to the various board level committees mainly audit committee, nomination and renumeration committee along with stakeholder management committee. The company also maintains adequate level of transparency with regards to business ethics issues like related party transactions, investors, grievances, litigations, and regulatory penalties for the group, if relevant. In terms of its social impact, DCL is actively engaged in community development programmes through its CSR activities. |
| Rating Sensitivity |
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| Material Covenants |
| None |
| Liquidity Position |
| Adequate |
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The company has cash and bank balances of Rs. 53.47 Cr. as on September 30, 2022. The collection efficiency for current month due for last 6 months at average stood at ~98 percent ended Sept 2022. The company raised fresh debt of Rs. 853 Cr in FY2022 & 305 Cr have been raised as on Nov 2022.
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| Outlook - Stable |
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Acuité believes that DCL will maintain a 'Stable' outlook in the medium term on account of the steady growth in loan book, adequate asset quality and comfortable profitability. The outlook may be revised to 'Positive' in case of significant increase in scale of operations and improvement in capitalisation while maintaining asset quality and overall profitability. The outlook may be revised to 'Negative' in case of deterioration in asset quality along with pressure on profitability, or significant weakening of capitalisation.
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| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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| Status of non-cooperation with previous CRA (if applicable): |
| None |
| Any other information |
| None |
| 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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