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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 250.00 | ACUITE A | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 250.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘ACUITE A’ (read as ACUITE A) on the Rs. 250.00 Cr bank facilities of KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED (KSIDC) . The outlook is 'Stable'.
Rationale for the rating The rating reaffirmation factors in KSIDC’s growth in loan portfolio which stood at Rs. 815.10 Cr. as on March 31, 2022 from Rs. 626.96 Cr. as on March 31, 2021 and healthy capitalization levels marked by networth of Rs. 869.12 Cr. from Rs. 813.87 Cr. as on March 31, 2021. The rating continues to factor in Government of Kerala’s (GoK) support and KSIDC’s strategic importance in the development of physical and social infrastructure required for industrial growth in the state. The rating factors in KSIDC’s role as a nodal agency for foreign and domestic investments in Kerala. The rating also factors in the improvement in PAT levels of KSIDC which stood at Rs. 54.93 Cr. in FY2022 as compared to Rs. 25.50 Cr. in FY2021. KSIDC made sanctions of Rs. 339.34 Cr. during FY2021 and Rs. 428.01 Cr. during FY2022. The rating is however constrained with high levels of GNPA’s of KSIDC. The corporation’s GNPA as on March 31, 2022 stood at 19.07 percent as compared to 33.07 percent as on March 31, 2022. KSIDC’s ability to continue to demonstrate growth in loan assets while containing asset quality risks will be key credit monitorable. |
| About the company |
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KSIDC was incorporated in 1961, by Government of Kerala (GoK) with the objective of facilitating and financing medium to large scale industries in the State. KSIDC offers financial assistance and support to service sectors like tourism, star category hotels, resorts, hospitals, infrastructure projects etc. In addition to project financing, KSIDC is also involved in creation of infrastructure facilities and investment promotion activities in the State. At present, KSIDC has 3 Industrial Growth Centres and 2 industrial parks in various parts of the State. Government of Kerala has 100 per cent holding in KSIDC. The head office of the Corporation is at Thiruvananthapuram and the Branch office is operated at Cochin. KSIDC provides services across all districts in Kerala. KSIDC is categorized as a Systematically Important Non-Deposit taking NBFC (NBFC-ND-SI) as per the norms of the RBI.
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| Analytical Approach |
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Acuité has considered a standalone approach while assessing the business and financial risk profile of KSIDC and has factored in financial, operational and managerial support it receives from Government of Kerala by virtue of being a state owned entity. The rating factors in the high degree of State Government holding in KSIDC along with the systemically important role played by the corporation in implementing the key financial and developmental objectives of the state.
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Key Rating Drivers
| Strength |
| Ownership and Support from Government of Kerala
KSIDC is a state owned corporation incorporated in 1961. The board of KSIDC includes representation from Government of Kerala (GoK). The Board of Directors comprises of bureaucrats appointed by the Government of Kerala. This indicates a strong level of managerial support from the Government of Kerala. KSIDC’s funding profile is supported by the State Government’s moral obligation to support the capitalisation levels both on an ongoing basis and in the event of distress. The Government of Kerala is a 100 percent stakeholder in the corporation as on March 31, 2022 and is expected to support the corporation given its systemic importance in the government’s efforts to step up industrial and economic activity in the state. KSIDC’s capitalisation levels remained adequate marked by Capital Adequacy Ratio (CAR) at 83.99 percent as March 31, 2022 . KSIDC is a Nodal Agency for several policy initiatives by the State Government of Kerala and is responsible to implement the policies announced in the annual state budget. The corporation in the past has operationalised various policy initiatives by GoK such as Kerala State Entrepreneurship Development/Startup Mission and Women Entrepreneur Development Mission. KSIDC reported growth in its loan portfolio which stood at Rs. 815.10 Cr. as on MArch 31, 2022 as compared to Rs. 626.96 Cr. as on March 31, 2021.The growth in loan portfolio of KSIDC has been as a result of the Corporation’s approach towards diversifying the loan portfolio as well as enlarging the clientele base. KSIDC made sanctions of Rs. 339.34 Cr. during FY2021 and Rs. 428.01 Cr. in FY2022. Loan portfolio as on September 30, 2022 stood at Rs. 812.37 Cr. The support from GoK is critical to the rating and therefore the credit profile of the state is of key importance. Kerala’s fiscal deficit stood at 34.3 per cent of the GSDP for FY2020-21 (RE) (3.0 per cent during the previous year). The outstanding debt of Kerala state as a percentage of GSDP remained over 37 percent for FY2020-21. The state’s revenue deficit for FY2020-21 (RE) stood at 2.9 percent of GSDP (PY 2.0 percent). The state’s fiscal headroom has been further impacted by the recent natural calamities, due to which the state had to seek approval for additional borrowing. While this is expected to put some pressure on Kerala’s fiscal metrics over the near term, the overall fiscal health of the state over the medium term is expected to stay satisfactory. The state’s key fiscal metrics i.e. fiscal deficit to GSDP and Debt to GSDP will remain key monitorables. Acuité believes that KSIDC will continue to benefit from strong financial and managerial support from the State Government on an ongoing basis over the medium term. |
| Weakness |
| Weak asset quality, albeit improving
KSIDC’s loan portfolio is concentrated towards the hospitality and the manufacturing segment which exposes KSIDC’s performance to risks associated with the said sectors. The asset quality of KSIDC remains weak as reflected in elevated Gross NPA of 19.07 percent as on March 31, 2022 which improved from 33.07 percent as on March 31, 2021. This is mainly due to operating challenges in these segments which has impacted the cash flows of the borrowers. KSIDC has done provisioning against NPAs as the Net NPA stood at 2.44% as on March 31, 2022 as against 10.06% on March 31, 2021. While the asset quality continues to be weak, the Return on Average Assets (RoAA) improved to 4.40 percent in FY2022 as against 2.82 percent in FY2021. The corporation is also taking efforts to reduce the NPA levels by offering one time settlement to the delinquent borrowers. Additionally, the corporation is focusing on improving collection and recovery mechanism. Acuité believes the ability of the corporation to control slippages and increase the loan portfolio will be one of the key rating drivers. |
| ESG Factors Relevant for Rating |
| Not Applicable |
| Rating Sensitivity |
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| Material Covenants |
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KSIDC 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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The company had a gearing level of 0.29 times as on March 31, 2022. As on March 31, 2022, the total borrowings stood at ~Rs. 249 Cr. and cash and bank balances stood at ~Rs. 138.60 Cr. The networth during the same period stood at Rs. 869.12 Cr. There were no negative cumulative balances in any bucket as per the ALM statement, submitted by KSIDC, as on June 30, 2022.
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| Outlook : Stable |
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Acuité believes that KSIDC will maintain a ‘Stable’ outlook over the medium term mainly supported by the continued support from the GoK. The outlook may be revised to 'Positive' in case of significant improvement in the operating performance of KSIDC backed by improved asset quality. The outlook may be revised to Negative' in case of events which may impinge on GoK’s ability to provide financial and operational support to KSIDC.
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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): |
| 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 • 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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