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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 125.00 | ACUITE BBB | Stable | Reaffirmed | - |
| Total Outstanding | 125.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB’ (read as ACUITE triple B) on the Rs. 125.00 crore bank facilities of MAG Finserv Company Limited (MFCL). The outlook is ‘Stable’. Rationale for rating The rating factors in MFCL’s adequate capitalization levels, increased scale of operations as well as healthy asset quality marked by on time portfolio at 98.91 percent and GNPA (180+dpd) at 0.75 percent as on March 31, 2024. MFCL’s AUM stood at Rs. 275.24 Cr. as on March 31, 2024 as compared to Rs. 212.80 Cr. as on March 31, 2023. The total disbursements for FY2024 stood at Rs. 441.83 Cr. The company’s CAR stood at 21.24 percent as on March 31, 2024. The rating further takes into consideration gradual shift in the company’s lending profile towards secured and liquid gold loans & improving profitability metrics supported by higher gold loan disbursals. During FY2024, gold loans comprised 91.76 percent of total disbursals vis a vis 89.54 percent during FY23. The rating is however, constrained by geographical concentration, limited financial flexibility and highly competitive business of lending against gold. Going forward, the company’s ability to raise capital, profitably scale-up its loan portfolio while maintaining the asset quality will be a key monitorable. |
| About the company |
| Maharashtra based MAG Finserv Company Limited commenced its operations as a NBFC from 2005. The Company was started by acquiring a NBFC registered with RBI that belonged to Bhosale Group. The Company offers asset backed financing (over 90% of AUM) in terms of gold loans, two wheeler loans and secured loans (LAP or equipment financing) and unsecured loans that comprise of Microfinance (less than 10% of AUM). The AUM stood at Rs. 275.24 Cr. as on March 31, 2024. |
| Analytical Approach |
| Acuité has considered the standalone financial and business risk profile of MFCL to arrive at the rating. |
| Key Rating Drivers |
| Strength |
| Experienced Management MFCL, a Maharashtra based NBFC is promoted by Mr. Ananta G. Mohotkar (Chairman). He has more than three decades of experience in the NBFC. He looks after the strategic planning and operations of the company. The Mohotkar Family held around 46.84 percent stake in the company as on March 31, 2024. Mr. Ananta G. Mohotkar is supported at board level by Mrs. Sunita A Mohotkar (Director) is engaged in women empower activities from over two decades, she looks after the operations of SHG segment in MFCL Mr. Ganpat R. Mohotkar (Director) have extensive experience of over four decades , He looks after the strategic planning of MFCL. Mr. Ravindra D. Velankar( Independent Director) is a ex-banker having experience of over four decades and is the chairperson of the audit committee. Mr. Ameya Tambekar (Director) is a chartered account by qualification, he has more than 13 years of experience in BFSI sector, in MFCL he heads the compliance and finance department. Acuité believes that MFCL will continue to benefit from its established presence and experience of the promoters in the gold loan segment. Healthy Asset Quality MFCL’s AUM stood at Rs. 275.24 Cr. as on March 31, 2024 as compared to Rs. 212.80 Cr. as on March 31, 2023. Asset quality has remained healthy marked by on time portfolio at 98.91 percent for FY2024. On time dpd profile has remained in the range of 89 – 98 percent since FY2020 till YTD. Gross NPA stood at 0.75 percent (NNPA: - 0.08 percent) as on March 31, 2024 as against 0.93 percent (NNPA: - 0.09 percent) as on March 31, 2023. Going forward, as company scales up its business operations in existing and newer geographies, asset quality is a key monitorable. Shift in lending profile MFCL commenced its lending operations in 2005. The NBFC is engaged in providing Gold Loan, Two-wheeler loans, LAP and Small Business Loans. As on March 31, 2024 Gold loan is a major part of the AUM. Gold loan comprised ~80 percent of the outstanding portfolio increasing from 43 % in FY 2019. Going forward the company plans to focus on gold loan portfolio which is more secured class of assets in its current offering and plans to grow the gold loan portfolio to 85%-90% of the total AUM. Increase in outstanding gold loan portfolio would make the portfolio more secure and would reduce the risk of losses. In order to enable speedier expansion, the company has implemented an asset-light franchise model from 2023 for its gold loan portfolio. In this model, the Company will grant franchise of MAG Finserv to qualified partners, preferably to those who have expertise as branch managers, rather than opening own branches and investing in fixed assets and opex for the same. Additionally, MFCL and the Central Bank of India have engaged into a co-lending agreement in 2023, and MAG and CBoI will lend jointly. This arrangement is crucial as it gives MCFL ample funding without leveraging the balance sheet. |
| Weakness |
| High geographical concentration MFCL has its presence in only 2 states Maharashtra and Karnataka with branch base of 62 as on March 31, 2024. The loan book is concentrated in Maharashtra, with ~91 percent of the loan book concentrated in the state as on March 31, 2024. The company’s operations are expected to remain confined to the states of Maharashtra and Karnataka over the medium term. Acuité believes that geographical concentration will continue to weigh on the company’s credit profile. Limited financial flexibility The capital structure of MFCL is supported by Networth of Rs. 53.81 Cr. and a total Debt of Rs. 251.38 Cr. and resulting into a gearing of 4.67 times as on March 31, 2024. The gearing levels have continued to remain over 4 times for the company since 2021. MFCL has borrowing profile consist of a mix of NBFC/FI and banks. The company has raised these loans at interest rates in the range of 10-12 percent. Acuite believes that the ability of the company to mobilize additional funding through debt/equity will be critical. |
| Rating Sensitivity |
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| Liquidity Position |
| Adequate |
| MFCL ’s overall liquidity profile remains adequate with no negative cumulative mis-matches in near to medium term as per ALM dated March 31, 2024 . The company had cash and cash equivalent of Rs. 7.04 Cr. as on March 31, 2024. |
| Outlook : Stable |
| Acuité believes that MFCL will maintain a 'Stable' outlook over the medium term supported by its established presence in the gold loan segment along with experienced promoters and demonstrated ability to maintain asset quality levels. The outlook may be revised to 'Positive' in case of higher-than-expected growth in loan portfolio while maintaining asset quality and capital structure. The outlook may be revised to 'Negative' in case of any headwinds faced in scaling up of operations or in case of significant deterioration in asset quality and profitability metrics. |
| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
**Total assets adjusted to Deferred Tax liabilty |
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| Status of non-cooperation with previous CRA (if applicable): |
| Not Applicable |
| 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 • Banks And Financial Institutions: https://www.acuite.in/view-rating-criteria-45.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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