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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 10.00 | ACUITE A | CE | Stable | Reaffirmed | Negative to Stable | - |
| Bank Loan Ratings | 177.50 | ACUITE BBB+ | Stable | Reaffirmed | Negative to Stable | - |
| Non Convertible Debentures (NCD) | 130.00 | ACUITE BBB+ | Stable | Reaffirmed | Negative to Stable | - |
| Total Outstanding Quantum (Rs. Cr) | 317.50 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE A (CE)’ (read as ACUITE A (Credit Enhancement)) on the Rs.10.00 Cr. partially credit enhanced term loan facility of Indel Money Limited (IML). The outlook is revised to 'Stable' from 'Negative'. Acuité has reaffirmed the long-term rating of ‘ACUITE BBB+’ (read as ACUITE triple B plus) on the Rs.130.00 Cr of Non-Convertible Debentures of Indel Money Limited (IML). The Outlook is revised to 'Stable' from 'Negative'. Acuite’ has reaffirmed the long-term rating of 'ACUITE BBB+' (Read as ACUITE triple B plus) on the Rs 177.50 Cr bank facilities of Indel Money Limited (IML). The Outlook is revised to 'Stable' from 'Negative'. Revision in Outlook: The revision in outlook is on account of significant improvement in earning profile The company has reported a PAT of Rs 13.75 Cr during 9MFY2022-23 compared to Rs 2.11 Cr during FY 2021-22. Improvement in earning profile is due to significant growth in AUM & disbursements supported by growth in the number of branches and focused business drives conducted by the company . The company’s AUM has increased to Rs 1016.63 Cr. as on December 31, 2022 as compared to Rs 671.57 Cr as on March 31, 2022. The company’s disbursements have increased from Rs 1158.80 Cr. during FY2021-22 to Rs 1656.90 Cr. during 9M FY2022-23. The rating also factors healthy asset quality. The company’s asset quality is market by on time portfolio of 95.03 percent as on September 30, 2022 with a GNPA of 1.52 percent as on September 30, 2022. The prudent underwriting policies adopted by the management has enabled the company to maintain healthy asset quality. The rating continues to factor promoter support of Indel Corporation Private Limited. Indel Corporation Private Limited holds 99.99% stake in IML. The promoters have collectively infused capital of Rs 29.35 Cr. till December 31, 2022. The Capital Adequacy Ratio (CAR) stood at 23.79% as on September 30, 2022 as against 23.75% as on March 31, 2022, due to infusion of equity capital. These strengths are partially offset by relatively higher leverage levels and geographically concentrated portfolio in the state of Tamil Nadu with ~39.40% percent of the AUM as on September 30, 2022. The rating is also constrained due to highly competitive business of lending against gold.
Acuité believes, going forward, the ability of the company to maintain comfortable capitalization levels with regular equity infusion, healthy resource raising ability and further augment its scale of operations while maintaining healthy profitability & asset quality will be a key rating monitorable.
The Rs 10.00 Cr transaction has a PCE in the form of unconditional, irrevocable, payable on demand guarantee by Northern Arc covering 18 percent of the issue size of the facility. The level of guarantee as a percentage of the aggregate outstanding principal of the issuance is, however, capped at 24 percent. If due to the amortization of the facility, the credit enhancement percent exceeds 24 percent of the aggregate outstanding principal of the issuance, the Guarantee Cap shall be reduced to 24 percent of the aggregate outstanding principal of the issuance (Revised Guarantee Cap). The final rating is assigned based on the fulfilment of the structure, terms and covenants detailed in the executed trust deed, deed of guarantee, legal opinion, debenture trust agreement, deed of hypothecation and other documents relevant to the transaction.
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| About the company |
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Indel Money Limited (IML) is a part of Indel Corporation Private Limited, promoted by Mr. Mahanan Gopalkrishnan, a business group with investments across financial services, automobile, hospitality, infrastructure development, media, communication, and entertainment. Incorporated in 1986, Indel Money Limited, is a Non-Deposit Taking Non- Banking Finance Company (ND-NBFC) based out of Kerala. The company is promoted by Mr. Mahanan Gopalkrishnan (Managing Director) and his son Mr. Umesh Mohanan (CEO). IML provides fund-based services like Gold Loan, MSME Loans, Business Loans (Secured & Unsecured), loans to group companies and a small portion of personal & trader loans. IML also provides fee-based services by way of money transfer facilities. As on December 31, 2022, IML operates in 6 states, namely Tamil Nadu, Karnataka, Andhra and Telangana, Odisha, Kerala and Maharashtra.
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| About the Guarantor |
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Northern Arc, previously known as IFMR Capital Finance Ltd., is a non-Deposit taking Non-Banking Financial Company (ND-NBFC) incorporated in 1989. It is involved in the placement (arranging funding for its clients via loan syndication, securitisation, and assignment among others) and lending business. The company acts as a link between mainstream capital markets investors and high-quality last mile lending institutions and businesses. The company’s business is categorized as finance sector exposure, i.e., microfinance, affordable housing finance, commercial vehicle finance, consumer finance, agri-finance and small business loans, and non-finance sector exposure, i.e., mid-market finance and corporates. Northern Arc reported Assets Under Management (AUM) of Rs. 6874 Cr. as on March 31, 2022 as against Rs. 5,220.87 Cr. as on March 31, 2021. Northern Arc’s asset quality improved with GNPA (90+dpd) at 0.51% as on March 31, 2022 as against 2.23% as on March 31, 2021. The company’s Profit After Tax (PAT) stood at Rs. 163.73 Cr for the period ending FY2022 (Rs. 67.51 Cr as of FY2021). The company’s debt/equity ratio was 2.53 times as on March 31, 2021 as compared to 1.96 times as on March 31, 2020. However, the debt/equity ratio increased to 3.50 times as on March 31, 2022.
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| Standalone (Unsupported) Rating |
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ACUITE BBB+/Stable |
| Analytical Approach |
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Acuité has considered standalone business and financial risk profile of IML to arrive at the rating and has further factored in the credit enhancement arising from the structure. The suffix (CE) indicates credit enhancement arising from the PCE in the form of unconditional, irrevocable, payable on demand guarantee covering 18% of the initial principal value of the facility amount. The strength of the underlying structure and continued adherence to the same is central to the rating. Accounting for the Partial Credit Enhancement, the agency has enhanced the rating of the facility to ACUITE A (CE)/ Stable. The Credit Enhancement (CE) in the rating is solely for the rated issue and its terms and structure. The notched up rating of the proposed loan facility incorporates the PCE in the form of guarantee by Northern Arc Capital Limited (“Northern Arc”), acting as the Credit Enhancer/ Guarantor.
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Key Rating Drivers
| Strength |
| Strength of underlying structure;
The Rs 10.00 Cr transaction has a PCE in the form of unconditional, irrevocable, payable on demand guarantee by Northern Arc covering 18 percent of the issue size of facility. The level of guarantee as a percentage of the aggregate outstanding principal of the issuance is, however, capped at 24 percent. If due to the amortization of the issuance, the credit enhancement percent exceeds 24 percent of the aggregate outstanding principal of the issuance, the Guarantee Cap shall be reduced to 24 percent of the aggregate outstanding principal of the issuance (Revised Guarantee Cap). IML shall make payments of interest and principal amounts due along with all other obligations (if any) under the Transaction Document on T-5 business days. In the event of failure of the Issuer to comply, on T-4 Business Days, the Trustee shall invoke the PCE and the credit enhancement shall be dipped on T-1 Business days. The issuance shall be secured by way of a first ranking, exclusive and continuing charge on identified receivables. The Hypothecated Receivables shall at all times be equal to the value of 1.1 times the outstanding amounts of the facility. In case of Issuer rating (as per Rating Agency’s view) downgrade to below BBB-, the Borrower will ensure that the percentage of outstanding principal value of PAR > 0 loans in the hypothecated pool does not exceed 10 percent of the outstanding principal value of the hypothecated pool.
Promoter support and experienced management team;
Acuité believes that the structure provides adequate covenants to safeguard the interest of the investors. The extensive experience of the promoters and senior management team, with the addition of independent directors, should continue to support the business. Mr. Mohanan Gopalakrishnan (chairman and managing director) is a banking professional with more than 30 years of experience in the Gulf Cooperation Council (GCC). He was also the head of trade finance operations of United Arab Bank for a span of 11 years commencing from 2001. Mr Umesh Mohanan (executive director and CEO) handled a Middle Eastern conglomerate, spearheading its global operations for 12 years till 2016. Apart from the promoter directors, the board members of IML consists of prominent independent directors such as Mr N S Venkatesh (CEO of Association of Mutual Funds in India), Mr C R Sasikumar (former Managing Director of State Bank of Travancore), Mr S Ganesh (former principal chief general manager of RBI), Acantharean T R (CA) & Mr. Salilvenu (Admin Professional).
Acuite believes that company will continue to benefit from the extensive experience of the promoters and management team along with Independent Director.Healthy growth in AUM and comfortable asset Quality; AUM grew to Rs. 1016.63 Cr as on December 31, 2022 as compared to Rs. 671.57 Cr as on March 31, 2022 (Rs. 513.49 Cr as on March 31, 2021). Loan against gold contributes 87.07 percent to the total POS followed as on December 31, 2022. The growth in AUM is supported by growth in number of branches and much focused business drives conducted by the company. The loans have an average tenure of 12 months. The company’s asset quality is marked by on time portfolio of 95.03 percent as on September 30, 2022 with a GNPA of 1.52 percent as on September 30, 2022. The prudent underwriting policies adopted by the management has enabled the company to maintain healthy asset quality.
Acuité believes that going forward the ability of the company to maintain comfortable asset quality and growth momentum in AUM will be key rating sensitivity. Improvement in financial performance: The company’s AUM has increased to Rs 1016.63 Cr. as on December 31, 2022 as compared to Rs 671.57 Cr as on March 31, 2022. Improvement in earnings profile is due to increase in AUM. The company has reported a PAT of Rs 13.75 Cr during 9MFY2022-23 compared to Rs 2.11 Cr during FY2022. RoAA of the company stood at 1.05 as on September 30, 2022 and 0.35 as on March 31,2022 and 1.79 as on March 31, 2021.
Acuité believes that IML will be able to sustain its financial performance and any impact on profitability metrics due to higher provisioning requirements would remain key monitorable.
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| Weakness |
| Leveraged capital structure;
IML is engaged in loans against gold and SME loans secured and unsecured for a period of 12 - 24 months. The company’s networth stood at Rs. 122.87 Cr. and total debt stood at Rs. 708.98 Cr. as on September 30, 2022. The company’s AUM stood at Rs. 1016.63 Cr as on December 31, 2022 as compared to Rs. 671.57 Cr as on March 31,2022 (Rs. 513.49 Cr as on March 31,2021). IML’s gearing stood at 5.77 times as on September 30, 2022 (6.00 times as on March 31, 2022). The total debt of Rs 708.98 Cr includes subordinated liabilities amounting to Rs 185.82 Cr. as on September 30, 2022. To support the growth momentum IML would require further debt and considering the already leveraged capital structure the promoters may be required to infuse additional equity to support any future business growth.
Going forward, Acuité believes that the company’s ability to manage its gearing levels will be a key monitorable and infusion of capital would be required for containing gearing levels and to support business growth. Modest scale of operations and geographical concentration; IML started its operations in the state of Kerala and gradually expanded to the states of Karnataka and Tamil Nadu and has recently expanded to other states like Telangana, Odisha, Andhra Pradesh, thereby reducing the concentration in the state of Kerala. However, major concentration is in the state of Tamil Nadu with exposure of 39.40% as on December 31, 2022. The company’s AUM stood at Rs. 1016.63 Cr as on December 31,2022 as compared to Rs. 671.57 Cr as on March 31,2022 (Rs. 513.49 Cr as on March 31,2021).The Top 15 Districts contribute 48.12% as September 30,2022 Thus, the company's performance is expected to be sensitive to highly competitive business of lending against gold and the occurrence of events such as natural calamities, which may adversely impact the credit profile of the borrowers. The company has plans to expand its operations in newer geographies and portfolio quality is these newer geographies is yet to be tested.
Acuite believes that geographical concentration coupled with improved earning profile will continue to weigh on the company’s credit profile. |
| Assessment of Adequacy of Credit Enhancement |
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IML has moderate experience in the secured, unsecured and gold loans segment, and its moderate capital position has been bolstered by capital infusions. Thus, even after considering risks such as possible asset quality deterioration, Acuité believes that the credit enhancement will stand adequate in all scenarios and in the event of any requirement, Northern Arc will provide the necessary support.
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| ESG Factors Relevant for Rating |
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Indel Money Limited is a non-banking finance company (NBFC) 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. The company has a well-structured board consisting of eight directors, in which two of them are executive directors. Out of six non-executive directors, three are independent directors. IML does have one woman director on board. In accordance with the guidelines issued by RBI, the entity has constituted a Risk Management Committee that is responsible for identification, evaluation, and mitigation of operational, strategic, and external environment risks. IML provides fund-based services like Gold Loan, MSME Loans, Business Loans (Secured & Unsecured), loans to group companies and a small portion of personal & trader loans. IML also provides fee-based services by way of money transfer facilities.
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| Rating Sensitivity |
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| Material Covenants |
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IML is subject to covenants stipulated by its lenders in respect of various parameters. |
| Liquidity Position |
| Adequate |
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IML’s overall liquidity profile remains adequate with no negative cumulative mismatches in near to medium term as per ALM dated September 31, 2022. ALM is comfortable mainly on account of shorter tenor of loans provided by IML with access to longer tenure borrowings. As on September 30, 2022, the company had cash and bank balance of about Rs 76.49 Cr.
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| Outlook: Stable |
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Acuité believes that IML will maintain ‘Stable’ outlook over the near to medium term supported by the sustainable growth in its profitability along with timely infusion of capital. The outlook may be revised to ‘Positive’ in case of significant and sustainable growth in its AUM while maintaining profitability, asset quality and capitalization indicators. The outlook may be revised to ‘Negative’ if the company faces challenges in raising fresh equity or long- term debt funding commensurate with its near-term business requirements and higher than expected deterioration in asset quality and profitability.
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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): |
| Not Available |
| 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 • Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.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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