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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 25.00 | ACUITE BBB- | Negative | Reaffirmed | Stable to Negative | - |
| Total Outstanding Quantum (Rs. Cr) | 25.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) on the Rs. 25.00 Cr. non-convertible debentures of Finstars Capital Limited (FCL). The outlook is revised from ‘Stable’ to ‘Negative’.
Reason for Revision in Outlook: The revision in outlook is on account of decline in profitability metrics, moderate scale of operations and elevated operating costs for the company. The profitability remained subdued in FY2023 due to high operating expenses as the company increased their overall branch and employee count during the same period. The opex to earning assets averaged over 13 percent for FY2022 and FY2023. FCL’s Profit After Tax (PAT) stood moderate at Rs. 2.36 Cr in FY2023 as compared to Rs. 2.84 Cr in FY2022. The company’s loan book stood at Rs. 51.69 Cr. as on March 31, 2023 as against Rs. 27.43 Cr. as on March 31, 2022. Finstar capital limited is group company of Sunrise Group. The rating continues to take into account Sunrise Group’s promoter experience in Debt Markets, institutional client base and adequate liquidity buffers. The group’s transactional volume declined to Rs. 17,331.18 Cr. in FY 2023 as against Rs. 21,171.58 Cr. in FY2022. The total operating income of the group increased to Rs. 27.96 Cr. as on March 31,2023 as against Rs. 25.61 Cr. as on March 31, 2022, and during the same period the PAT moderated to Rs. 9.19 Cr. in FY2023 as against Rs. 13.89 Cr in FY2022. The rating further factors in group’s foray into lending business which has an outstanding portfolio of Rs.51.69 Cr. as on March 31, 2023, as against Rs. 27.43 Cr. as on March 31,2022. The rating further factors in comfortable capitalization levels of FCL marked by CRAR of 29.12 percent as on March 31,2023 and a gearing of 2.72 times. FCLs total operating income improved to Rs. 9.93 Cr in FY 2023 from Rs. 7.80 Cr. in FY 2022, and PAT stood at Rs. 2.36 Cr. in FY 2023 as against Rs. 2.84 Cr. in FY 2022. The rating is however, constrained by company’s small scale of NBFC operations, income volatility on account of dependence on debt market volumes, low margin and highly competitive scenario in debt markets industry. While the company’s trading volumes are mainly intraday, it is exposed to some price risk in its investment and treasury portfolio. Going forward, the company’s ability to profitably scale up its Debt Markets and NBFC operations are key rating sensitivities. |
| About the company |
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Finstars Capital Limited (FCL) was incorporated in 1989, as Gopalka Motor Finance limited and was involved in providing Motor Finance. In 2017, the promoters of Sunrise Group took over control of the company and changed the name of Finstars Capital Limited. FCL is a registered NBFC with RBI. The objective of promoters to engage in lending activities was to diversify Sunrise Group’s revenue stream. FCL is engaged in providing secured credit to SME’s. FCL has two business segments, trading in Securities and NBFC operations.
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| Analytical Approach |
| Acuité has adopted a standalone approach on FCL’s business and financial risk profile for arriving at the rating. |
Key Rating Drivers
| Strength |
| Established presence of the promoters and improvement in financial and operational risk profile
FCL was incorporated in 2017 and is an RBI Registered NBFC. FCL basically acts as a market maker and book runner for G-Secs, SDLs, Government guaranteed debt and highly rated corporate bonds on matched principle basis. It benefits from Sunrise Group’s established presence of the promoters in Indian capital markets and long-standing relationships with various clients. FCL functions as an intermediary for its clients to buy and sell debt securities, both Government and private. Its network and market intelligence enable it to offer solutions to its clients which mostly comprise Central & State Government Undertakings, Private & Nationalized Banks, and Financial Institutions & Private Sector Corporates which includes banks, mutual funds, insurance companies, provident and pension funds as well as semi- institutional clients like wealth management companies, corporates, family offices.
The established presence of Sunrise group in the Indian capital markets, long-standing relationships with various clients and trade based on matched principle basis has enabled FCL to scale up its transactional volume year-on-year basis. FCL’s transactional value of sale and purchase of securities traded declined to Rs. 535.66 Cr. in FY2023 from Rs. 866 Cr. in FY2022 (including intra-day transaction which comprise around 70-80 percent of total volumes). FCL also reported improvement in its earning profile with improvement in total income which stood at Rs. 9.93 Cr. in FY2023 as compared to Rs. 7.80 Cr. in FY2022. Net Income from sale and purchase of bonds remains the major revenue source of FCLs revenue structure which marginally increased to Rs. 4.13 Cr. in FY2023 from Rs. 4.03 Cr. in FY2022. Income from lending activities witnessed an improvement with Net Interest Income at Rs. 4.62 Cr. in FY2023 from Rs. 2.96 Cr. in FY2022. FCL commenced its lending operations in FY2019. FCL extends secured loans majorly to SME borrowers with a tenure ranging between 3 -5 years. The loans are secured with an LTV of around 35–40 percent. FCL’s loan portfolio although modest, improved to Rs. 51.69 Cr. as on March 31, 2023, from Rs. 27.43 Cr. as on March 31, 2022. Acuité believes that despite improvement in Sunrise Group’s earning profile, its business operations would remain susceptible to inherent risks in capital market and overall economic environment. |
| Weakness |
| Susceptibility of performance to optimal management of credit and market risks Sunrise Group’s business performance is linked to the level of activity in the bond markets which in turn is linked to the overall economic activity. The volumes in the debt capital market are influenced by economic cyclicality and other macroeconomic factors such as GDP, growth rate, inflation, movement in interest rates and policy actions adopted by RBI. Sunrise Group generally engages into buy and sell transactions on behalf of its clients which comprise Central & State Government Undertakings, Private & Nationalized Banks, and Financial Institutions & Private Sector Corporates including provident and pension funds, mutual funds, banks, family offices etc. Most of the purchases of the securities are simultaneously sold to its clients. As a prudent strategy, Sunrise Group prefers to minimize the holding period in respect of any securities which significantly mitigates the associated credit risk and market risk. However, since a complete matching and synchronization of purchase and sale orders may always not be feasible, Sunrise Group will always be required to maintain certain inventory at any point of time. This exposes the company to certain credit and market risk. The risk assumed by the group depends on nature of the security, volatility in the price of the security and the period of the holding. The timely churning of the portfolio also becomes important. Occurrence of significant credit events such as credit cliffs i.e. sharp deterioration in credit quality, may often result in a material decline in the bond prices and impact the liquidity of the counter. Such events could also trigger demands for accelerated payments by lenders in case of pledge-based borrowings. Sunrise Group’s NBFC business activity carried out under Finstars Capital Limited commenced its lending operations in FY2019. FCL extends loans majorly to SME borrowers with a tenure ranging between 3 -5 years. The loans are secured with an LTV of around 35 – 40 percent. FCL’s loan portfolio stood at Rs. 51.69 crore as on March 31, 2023, increasing from Rs. 27.43 crore as on March 31, 2022. Sunrise Group’s lending operations are majorly concentrated in the state of Gujarat with around 99 percent of the outstanding portfolio as on March 31, 2023. Besides geography, the company's performance in its lending segment is expected to remain exposed to competitive landscape. |
| Rating Sensitivity |
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| Material Covenants |
| FCL is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality among others |
| Liquidity Position |
| Adequate |
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FCL has Cash and bank balance of Rs. 3.85 Cr. as on March 31, 2023. As per ALM statement as on March 31, 2022, FCL has no negative cumulative mismatches in near to long term buckets.
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| Outlook - Negative |
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Acuité believes that FCL will maintain ‘Negative’ outlook over the near to medium term on account of weakened earnings profile. The outlook may be revised to ‘Stable’ in case FCL demonstrates sustainable growth in its profitability along with timely infusion of capital. The rating may be downgraded if in case of any further decline in profitability, increase in debt levels and higher than expected deterioration in asset quality. |
| 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 • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Service Sector: https://www.acuite.in/view-rating-criteria-50.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 suchinstruments 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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