Experienced management team supported by institutional investors
JFSPL is promoted by Mr. Sunanda Kumar Mitra and Mr. Alok Biswas. The promoters together hold 30.69 per cent of the total equity, as on December 31, 2022. In FY 2021 the company had received additional funding support from Sun Tech City Pvt Ltd for a 12.64 percent stake in equity capital. Mr. Biswas, Managing Director and CEO is an ex-banker with over three decades’ experience in the BFSI sector through his association with Canara banks and Axis bank. Mr. Mitra, Chairman has over three decades’ experience in BFSI sector, he was ex AGM of State Bank of India and has been associated as DGM Credit, AXIS Bank and Bandhan Bank. The promoters are supported by a team of independent directors, Mr. R.V. Dilip Kumar, SIDBI Venture Capital Limited; Mr. Atanu Sen, ex-DMD, State Bank of India; amongst others. Besides the renowned persons on the Board, the company has in place professionals heading key verticals. The company commenced its operations through 24 branches in West Bengal of SMS from March 2017 and since then; the company has expanded its operations to Bihar, Jharkhand and Odisha in FY2019. In FY2020, the company has also set its footprint in Assam and Tripura. As on December 31, 2022, the company operates through a network of 75 branches spread across 22 districts. JFSL’s loan portfolio stood at Rs. 136.80 Cr. on December 31, 2022 as against Rs.134.47 Cr. as on March 31, 2022. The Capital adequacy ratio (CAR) of JFSL stood at 47.70 per cent as on December 31, 2022 majorly comprising of tier I capital (46.78 percent).
Acuité believes that JFSPL will continue to benefit from its experienced management; however, going forward the ability to attract funding from the financial institutions would be critical.
 Improvement in asset quality metrics
The company’s GNPA have declined to 0.10 percent as on March 31, 2022 as against 1.32 per cent as on March 31, 2021.NNPA has reduced from 0.30 per cent to 0.04 per cent as on March 31, 2022. The company’s GNPA and NNPA stood at 0.28 percent and 0.06 percent respectively as on December 31, 2022. The PCR stood at ~79 percent as on December 31,2022. The company has shown improvement in on time portfolio improving from ~45 per cent as on September 2020 to 99.14 percent as on December 31, 2022.
Going ahead, Acuité believes that the ability of the company to demonstrate growth in its loan assets, while maintaining healthy asset quality, will be crucial to the credit profile of the company.

Susceptibility of operating performance to regulatory environment and access to funding at competitive prices

JFSL’s overall portfolio stood at Rs. 136.80 Cr as on December 31, 2022 as against Rs. 134.47 Cr. as on March 31, 2022. Since, the company has significantly expanded its operations and is continuously expanding to newer locations, the operating expenses have remained at higher levels, which can be seen in the operating expense to earning asset ratio of 12.23 percent in September 30, 2022 (annualized) as against 11.25 percent in FY2022. The company’s Return on Average Assets (RoAA), was low at 0.54 percent in September 30, 2022 (annualized) as against 1.46 per cent in FY2022. The Net Interest Margins (NIM) also declined to 7.84 percent in H1FY23 as against 9.31 percent in FY2022. JFSL is susceptible to changes in the regulatory framework and policies pertaining to Capital Adequacy and Provisioning norms. Further, recent NBFC crisis, coupled with cautious and selective approach adopted by banks and financial institutions has resulted in difficulties faced by players such as JFSL to raise funding at competitive rates thereby pressurising profitability as seen in the past.
 
Acuité believes that the ability of JFSL to grow its loan book, while improving its profitability, will be a key monitorable.

Geographic concentration risk
 
JFSPL’s operations are concentrated at West Bengal accounting for 58 percent of its AUM as on 31 December 2022 followed by Bihar at 32 per cent and Odisha at 5 percent. While the company is gradually expanding into other states such as Jharkhand, Assam and Tripura, there is an overall concentration of the lending business in West Bengal contributing ~58 per cent of its AUM, followed by Bihar ~32 per cent and remaining amongst other four states. Thus, the company's performance is expected to remain exposed to the competitive landscape in these regions and the occurrence of events such as natural calamities, which may adversely impact the credit profile of the borrowers. Besides geography, the company will be exposed to competition and any changes in the regulatory framework, thereby impacting the credit profile of JSFPL. Generally, the risk profile of a microfinance company with a geographically diversified portfolio is more resilient compared to that of an entity with a geographically concentrated portfolio.
 
Acuité believes that the high geographical concentration of its portfolio will continue to weigh on its credit profile over the near to medium term.
 
Modest profitability parameters
 
The company’s financial risk profile is modest as marked by improvement in PAT, which has improved from Rs. 0.47 Cr as on March 31,2021 to Rs. 2.05 Cr as on March 31, 2022. The PAT moderated to Rs. 0.36 Cr as on September 30, 2022.  ROAA declined to 0.54 percent as on September 2022 from 1.46 percent as on March 31, 2022. Operating expenses to earnings ratio (OPEX) showed an increased to 12.23 percent as on September 30, 2022 from 11.25 percent as on March 31, 2022.