|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 275.00 | ACUITE A+ | Stable | Upgraded | - |
| Non Convertible Debentures (NCD) | 90.00 | ACUITE A+ | Stable | Upgraded | - |
| Non Convertible Debentures (NCD) | 10.00 | Not Applicable | Withdrawn | - |
| Non Convertible Debentures (NCD) | 30.00 | PP-MLD | ACUITE A+ | Stable | Upgraded | - |
| Total Outstanding Quantum (Rs. Cr) | 395.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 10.00 | - | - |
| Rating Rationale |
|
Acuité has upgraded the long term rating from ‘ACUITE A’ (read as ACUITE A) to 'ACUITE A+' (read as ACUITE A plus)on Rs. 275.00 cr. bank facilities of Finova Capital Private Limited (FCPL). The outlook is ‘Stable’.
Acuité has upgraded the long term rating from ‘ACUITE A’ (read as ACUITE A) to 'ACUITE A+' (read as ACUITE A plus)on Rs. 90.00 Cr. NCD of Finova Capital Private Limited (FCPL). The outlook is ‘Stable’. Acuité has upgraded the long term rating from ‘ACUITE PP-MLD A’ (read as ACUITE Principal Protected Market Linked Debentures A) to 'ACUITE PP-MLD A+' (read as ACUITE Principal Protected Market Linked Debentures A plus)on Rs. 30.00 cr. bank facilities of Finova Capital Private Limited (FCPL). The outlook is ‘Stable’. Acuité has Withdrawn the long-term rating of ‘ACUITE A’ (read as ACUITE A) on the Rs. 10 Cr. NCD of Finova Capital Pvt Ltd (FCPL). The rating has been withdrawn on account of the client's request and NOC received from the lender, as per Acuite's policy of withdrawal of ratings. Reason for revision in Rating The revision in rating is on account of significant traction in scale of operations while maintaining healthy asset quality and profitability metrics. FCPL’s earning profile significantly improved as reflected in ROAA which stood at 4.84 percent for FY23 (P.Y.: 2.26 percent). The PAT grew from Rs. 29 Cr. in FY22 to Rs. 88 Cr. in FY23. The rating upgrade also reflects the healthy capitalization and capital buffers established by Capital Adequacy Ratio (CAR) of 59.06 percent and leverage of 1.02 times as on March 31, 2023. Further, the rating factors in the significant improvement shown in disbursements with AUM growing to Rs. 1628.76 Cr. as on March 31, 2023 from Rs. 948.19 Cr. as on March 31, 2022. The rating continues to factor in FCPL’s experienced management, efficient risk management systems and collection process adopted by the company demonstrated by its on-time portfolio of 94 percent as on June 30, 2023. The rating is constrained by geographically concentrated loan portfolio (~72 percent in Rajasthan), exposure to riskier borrowing segment and low seasoning (~60 percent of outstanding portfolio with a seasoning less than two years). Further, the inherent risks of lending in this segment have been exacerbated by localised lockdowns and economic disruptions in the past. Going forward, the ability of the company to scale up its operations, contain asset quality while maintaining healthy profitability will be key credit monitorable. |
| About the company |
|
Incorporated in 2015, Finova Capital Private Limited (FCPL) is a Jaipur based NBFC promoted by Mr. Mohit Sahney who has over two decades of experience in retail banking and financial services. The company is engaged in extending MSME loans and Home loans (both products secured against property). FCPL operates through a network of 243 branches spread across states of Rajasthan, Madhya Pradesh, Uttar Pradesh, Delhi-NCR, Chhattisgarh, Haryana, Jharkhand, Uttarakhand, Punjab, Bihar, Odisha and Telangana and has a borrower base of 53,266 borrowers as on June 30, 2023. |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of FCPL to arrive at the rating. |
Key Rating Drivers
| Strength |
FCPL commenced its lending operations since March 2016 and extends MSME loans and Home loans (both products secured against property). FCPL’s borrower profile comprise MSME units providing services, small traders, retailers, businessmen and other local small business operators primarily engaged in providing essential services. The company was founded by Mr. Mohit Sahney (MD & CEO) and Mrs. Sunita Sahney (Executive Director). Mr. Mohit Sahney has an experience spanning over two decades in retail banking and financial services. He was earlier associated with ICICI bank and served in various capacities in different segments. Mr. Sahney has been able to bring on board marquee institutional investors like Peak XV (erstwhile Sequoia Capital India Investment), Faering Capital, Norwest Capital LLC and Maj Invest Financial.
Peak XV and Faering Capital have board representation and FCPL benefits from their expertise. Mr. G.V Ravishankar (MD), and Mr. Ishaan Mittal (Vice-President) of Peak XV and Mr. Aditya Deepak Parekh, Co-founder of Faering Capital are on the board of FCPL. FCPL’s board also has representatives from Norwest Capital LLC and Maj Invest Financial Fund as observers. FCPL has been able to obtain funding from these investors to the tune of ~Rs. 850 Cr. through compulsory convertible cumulative preference capital in four rounds of funding held in FY2018, FY2019, FY2021 and 2022. The company’s outstanding loan portfolio stood at ~Rs. 1629 Cr. as on March 31, 2023 (~Rs. 948 Cr. as on March 31, 2022 and ~Rs. 590 Cr. as on March 31, 2021). The portfolio further increased to Rs. 1763 Cr. as on June 30, 2023. FCPL has demonstrated growth in its scale of operations by expanding its network to 243 branches across states of Rajasthan, Madhya Pradesh, Uttar Pradesh, Delhi-NCR, Chhattisgarh, Haryana, Jharkhand, Punjab, Bihar, Uttrakhand, Odisha and Telangana. Rajasthan still constitutes for major portion of the company’s portfolio accounting for ~72 percent of the outstanding portfolio as on June 30, 2023. However, within Rajasthan the portfolio is spread across 31 districts. Acuité believes that the company’s growth prospects will be supported by the promoter’s extensive experience in the financial services sector fortified by support from marquee investor like Peak XV, Faering Capital, Norwest Capital and Maj invest.
FCPL’s networth stood at Rs. 1009 Cr. as on March 31, 2023 and reported a healthy capital adequacy ratio (CAR) of 59.06 percent mostly comprising Tier 1 capital (58.64 percent). The company’s leverage indicators are healthy at 1.02 times as on March 31, 2023. The company has a diversified lender profile comprising Banks and NBFC/FI’s, with total debt of Rs. 1024.98 Cr. outstanding as on Mar, 2023.
FCPL’s profitability indicators are also healthy marked by Net Interest Margin (NIM) which stood at 14.35 percent as on March 31, 2023 (P.Y 10.78 percent). The company’s Return on Average Assets (RoAA) significantly improved to 4.84 percent as on March 31, 2023 from 2.26 percent as on March 31, 2022. Operating Expense to Earning Assets stood at 5.52 percent as on March 31, 2023. Acuité believes that the company’s comfortable capitalization levels will support its growth plans over the medium term. |
| Weakness |
FCPL commenced its lending operation in March, 2016 extending MSME loans (secured against property) having an average tenure of upto 6-7 years. The company’s loan book of Rs. 1629 Cr. as on March 31, 2023 has grown significantly from Rs. 948.19 Cr. as on March 31, 2022 and from Rs. 590 Cr. as on March 31, 2021. The outstanding loan portfolio stood at Rs. 1763 Cr. as on June 30, 2023. Due to substantial growth in loan book in the last couple of years, ~60 percent of the overall portfolio has a seasoning of less than two years as on September 30, 2021.
Around 91 percent of FCPL’s portfolio of Rs. 1763 Cr. as on June 30, 2023 accounts for MSME loans and ~9 percent towards Home loans. FCPL’s overall credit profile is susceptible to concentration towards MSME loan which in turn are facing their own inherent risks and challenges. Further, since MSME loans are extended to self-employed individuals for business purposes, the serviceability of these loans is directly dependent on the level of economic activity in the region. Majority of the FCPL’s MSME borrowers comprise services providers, small traders, retailers, businessmen and other local small business operators. The company’s operations are concentrated in Rajasthan with ~72 percent of the overall outstanding portfolio as on June 30, 2023. FCPL has started to diversify its geographical presence by operating branches in Uttrakhand, Odisha and Telangana. Occurrence of events such as slowdown in economic activity or shifting of activity to other geographies could impact the cash flows of the borrowers, thereby impacting credit profile of FCPL. The company saw an increase in delinquencies in asset quality with a GNPA (at PAR 90+ days past due) at 1.16 percent as on June 30, 2023 (provisional) as compared to GNPA of 0.97 percent March 31, 2023 as provision provided the NNPA stood at 0.05 percent as on June 30,2023 as compared to NNPA of 0.32 percent as on Mar 31, 2023. The overall collection efficiency stood at an average of ~89 percent for 6 months period ended June 31, 2023. Relatively low seasoning of portfolio with concentration in Rajasthan is expected result in increased asset quality pressures due to current operating environment. Acuité believes that the company’s ability to maintain its asset quality given the low seasoned loan book and increased presence in the newer geographies will remain a key rating monitorable. |
| ESG Factors Relevant for Rating |
|
Finova Capital Private Limited (FCPL) 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. FCPL is primarily engaged in extending MSME loans and home loans (both products secured against property). The board comprises of a total of seven directors which comprises of two independent director, one female director and three nominee 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, FCPL is actively engaged in community development programmes through its CSR activities |
| Rating Sensitivity |
|
| All Covenants |
|
FCPL is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality among others. As per confirmation received from client the company is adhering to all terms and conditions stipulated as covenants by all its lenders/investors.
|
| Liquidity Position |
| Adequate |
|
FCPL’s overall liquidity profile remains adequate with no negative cumulative mis-matches in near to medium term as per ALM dated June 30, 2023. The company has unencumbered cash and cash equivalents of Rs. 23 Cr. as on March 31, 2023 and unencumbered bank deposits of Rs. 342 Cr. FCPL’s collections during June 2023 were ~98 percent of the scheduled collections. FCPL extends MSME loans (secured against property) with a focus on borrowers providing services, small traders, retailers, businessmen and other local small business operators, which are primarily engaged in providing essential services. The focus on such borrowers specially in current Covid situation has enabled the company to maintain its collection efficiency. Further, FCPL has been able to obtain funding through long term debt and through additional capital infusion from its existing investors.
Acuité believes that the company’s liquidity profile will continue to benefit from funding support from its investors. |
| Outlook: Stable |
|
Acuité believes that FCPL will maintain a ‘Stable’ outlook over the near to medium owing to established track record of promoters and their resource raising ability along with demonstrated growth in loan portfolio while maintaining asset quality and profitability metrics. The outlook may be revised to ‘Positive’ in case of higher than envisaged growth in loan portfolio while maintaining profitability and asset quality metrics. Conversely, the outlook may be revised to ‘Negative’ in case of any deterioration in asset quality or profitability metrics.
|
| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
| Status of non-cooperation with previous CRA (if applicable): |
| None |
| Any other information |
| None |
| Applicable Criteria |
|
• 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 |
| 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. |
|
| |
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Contacts |
|
|
|
About Acuité Ratings & Research |
