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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 25.00 | ACUITE BBB- | Stable | Assigned | - |
| Bank Loan Ratings | 400.00 | ACUITE BBB- | Stable | Downgraded | Negative to Stable | - |
| Total Outstanding Quantum (Rs. Cr) | 425.00 | - | - |
| Rating Rationale |
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Acuité has downgraded the long-term rating from Acuité BBB (read as Acuité triple B) to Acuité BBB-’ (read as Acuité triple B minus) on the Rs. 400.00 crore bank facilities of Jagaran Microfin Private Limited (JMPL). The outlook has also been revised from 'negative' to 'stable'.
Acuité has assigned the long-term rating of Acuité BBB-’ (read as Acuité triple B minus) on the Rs. 25.00 crore bank facilities of Jagaran Microfin Private Limited (JMPL). The outlook is 'stable'. Reasons for downgrading: The rating downgrade reflects continued deterioration in the operating performance for the last three years through FY 23 (prov.). The net interest income has declined by around 36% to Rs. 28.47 crore compared to Rs. 44 crore in FY 21 on account of a reduction in spread due to higher interest expenses in FY 23. The performance of the company has also remained significantly lower than Acuite's expectations. Although the disbursement has been higher in FY23 (Rs. 340.14 crore) as compared to that in FY22 (Rs. 208.33 crore), the disbursement has picked up momentum towards the latter half of FY23. Hence, the impact of higher disbursements on asset quality has yet to be observed. The rating action takes into consideration the company’s moderate scale of operations, geographical concentration in West Bengal and Bihar (87.9 percent of the total portfolio as of March 31, 2023), and subdued profitability. Regarding asset quality, although the company’s 90+ dpd improved from 4.62 percent as of March 31, 2022, to 4.22 percent as of March 31, 2023, the 180+ dpd deteriorated from 1.63 percent as of March 31, 2022, to 3.61 percent as of March 31, 2023. Going forward, JMPL’s ability to continue building its loan portfolio while addressing the declining profitability and minimising the adverse impact of the asset quality that might arise on account of a back-end increase in disbursements would be key rating sensitivities. |
| About the company |
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Jagaran Microfin Private Limited (JMPL) (formerly SBT Consultants Private Limited) is promoted by GTFS Multi Services Limited, a holding company with 67.87 percent shareholding as of March 31, 2023. The company commenced its operations in microfinance lending in 2010. It commenced its operations in West Bengal to provide microloans to low-income active entrepreneurs, urban and rural producers, traders, small-scale farmers, and self-employed persons under the joint lending group (JLG) model. Over the past 13 years, the company has built a borrower base of 1,46,056 individuals spread across 134 branches in 35 districts in West Bengal, Bihar, Jharkhand, Orissa, and Assam.
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| Analytical Approach |
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Acuité has considered the standalone financial and business risk profile of JMPL to arrive at the rating.
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Key Rating Drivers
| Strength |
| Established presence in microfinance sector
Set up in 2010, JMPL has an established presence of around a decade in the microfinance sector. It has a board with reputed members who maintain strong oversight on the business. The board of directors of the company comprises of three whole time directors, one non-independent director and two independent directors. Its Chairman, Mr. Dipankar Chatterji is a CA and has more than 36 years of experience. The other board members include Mr. Rana Som (Independent Director), Ex-Chairman and Managing Director of NMDC Limited and Hindustan Copper Limited, Mr. Subrata Gupta (Independent Director), ex- Managing Director of NABFINS Limited, Ms. Sandip Das (Non-Executive, Non-Independent Director) (Since August 2005 he is practicing in his individual capacity under the name and style Sandip Das & Associates), Mr. Sourav Ghosh (Managing Director) and Ms. Aatreyee Majumder (CRO & WTD). The board is adequately supported by an experienced management team, headed by CEO & WTD, Mr. Jaydeep Gosh, who has over two decades of experience in the BFSI segment. The management along with the board has instituted good governance and control mechanisms with the separate presence of both audit and inspection departments who submit reports to the board on a regular presence. The company operates across 134 branches in 35 districts of West Bengal, Bihar, Jharkhand, Orissa and Assam. JMPL’s AUM increased to Rs. 351.62 Cr in FY2023 from Rs. 305.22 Cr in FY2022. The company is looking to expand further in the eastern and the northeastern states where the microfinance penetration is relatively low. Acuité believes that JMPL will continue to benefit from its well devised governance structures, experienced management, and its significant track record in the microfinance sector. Adequate capitalization level The capital structure is supported by Networth of Rs. 103.35 Cr and Borrowings including NCD and sub debts of Rs. 311.15 Cr as on March 31, 2023. Gearing increased to 3.28 times (prov.) as on March 31, 2023 (FY2022: 3.07 times), mainly on account of increase in borrowings as growth momentum started in FY2023. The company plans to cap leverage at 5x over the near to medium term. The entity raised capital of Rs. 6.00 Cr from the existing shareholders in August 2022, which helped bolster its capitalisation profile. The company’s capital adequacy ratio (CRAR) remained adequate at 23.4 percent as on March 31, 2023 as against 26.30 percent as on March 31, 2022. As on March 31, 2023, JMPL has funding relationships with 27 lenders. The funding profile is comprised of bank loans (54.6 percent), FIs/NBFCs (38.1 percent), debentures (5.9 percent), & subordinated debt (1.5 percent). JMPL is promoted by GTFS Multi Services Limited (67.87 percent shareholding as on March 31, 2023), which has been in insurance brokerage for more than three decades. Acuité believes, going forward, the ability of the company to raise capital and to deploy the funds profitably will be a key rating monitorable. |
| Weakness |
| Subdued profitability
The company’s profitability metrics has remained subdued. JMPL’s Net Interest income stood at Rs. 28.47 Cr in FY2023 as against Rs. 32.42 Cr in FY2022. For FY2023, PAT stood at Rs. 3.62 Cr as compared to Rs 3.65 Cr for FY2022, which adds uncertainty to the profitability position in FY2024. Further, JMPL’s RoAA decreased to 0.89 percent percent in FY2023 (prov.) as compared to 0.94 percent in FY2022. Acuité believes that the ability of the company to be profitable will depend on its operational efficiencies and ability to maintain growth momentum. Muted growth in disbursements and AUM JMPL is engaged in micro-lending activities to low-income active entrepreneurs, urban and rural producers, traders and small-scale farmers and self-employed people. The operations are spread across West Bengal, Bihar, Jharkhand, Odisha, and Assam. Acuite believes that moderate geographical concentration of its portfolio will continue to weigh on its credit profile over the near to medium term. Although the disbursement has been higher in FY23 (Rs. 340.14 Cr) as compared to that in FY22 (Rs. 208.33 Cr), the disbursement has picked up momentum towards the later half of FY23. Hence, the impact of higher disbursements on the asset quality is yet to be seen. The company's AUM growth has also been sluggish. JMPL's AUM stood at Rs. 351.62 Cr (including Rs 10.12 Cr of BC partnership) as on March 31, 2023 while it stood at Rs. 305.22 Cr as on March 31, 2022. Acuite believes that any challenges in collections and disbursements is also likely to impact the asset quality. Going forward, the ability of the company to grow its AUM will be a key factor in the scalability of a business while maintaining the profitability. |
| ESG Factors Relevant for Rating |
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Jagaran Microfin Private Limited (JMPL) (erstwhile SBT Consultants Private Limited) is promoted by GTFS Multi Services Limited, holding company with 67.87 percent shareholding as on March 31, 2023. 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.
The entity maintains adequate transparency in its business ethics practices as can be inferred from the entity’s disclosures regarding related party transactions, vigil mechanism and whistle blower policy. The board of directors of the company comprises of three whole time directors, one non-independent director and two independent directors. |
| Rating Sensitivity |
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| Material Covenants |
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JMPL 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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JMPL’s liquidity profile remained adequate as on March 31, 2023, with no negative cumulative mismatches in any of the buckets as per the reported liquidity statement. JMPL’s unencumbered cash and cash equivalents stood at Rs. 19.3 Cr. as on March 31, 2023 (Provisional). Its liquidity buffers primarily depend on its cash inflows (collections from clients and loans from banks) vis. a vis. the cash outflows (disbursements, debt servicing commitments, operating expenses). The company’s recovery rates including overdue recovery improved from 65 percent in December 2021 to 93 percent in March 2023 and the current collection rate remained above 99 percent. Acuité observes that the collection efficiency of the company has been showing an improving trend. The management maintains a policy of keeping surplus liquidity for meeting debt obligations for the next two months. Further, the company is in talks with various lenders to raise long term debt. Acuité believes that the ability to raise long term funding and ability to raise collection efficiency to optimal levels will be critical to maintaining a stable liquidity profile.
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| Outlook: Stable |
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Acuité believes that JMPL's credit profile will maintain a ‘Stable’ outlook owing to its established track record of operations, expected improvement in capitalization levels and collection efficiency along with adequate liquidity buffers. The outlook may be revised to ‘Positive’ in case JMPL is able to demonstrate better than expected performance while maintaining asset quality and gearing levels. Conversely, the outlook may be revised to ‘Negative’ in case of continued deterioration in asset quality indicators or higher than anticipated gearing levels.
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| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
*Total income equals to Net Interest Income plus other income
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| Status of non-cooperation with previous CRA (if applicable): |
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CARE, vide its press release dated August 26, 2022, continued the rating of JMPL under the ‘issuer non-cooperating’ category.
CARE, vide its press release dated June 15, 2021, placed the rating of JMPL under the ‘issuer non-cooperating’ category. |
| Any other information |
| Not applicable |
| 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 • 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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