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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 126.00 | ACUITE BBB- | Stable | Assigned | - |
| Bank Loan Ratings | 50.00 | ACUITE BBB- | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 176.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB-’(read as ACUITE Triple B Minus) on the Rs. 50.00 Cr. bank facilities of Mahasemam Trust (MT). The outlook is ‘Stable’.
Acuité has assigned the long-term rating of ‘ACUITE BBB-’(read as ACUITE Triple B Minus) on the Rs. 126.00 Cr. bank facilities of Mahasemam Trust (MT). The outlook is ‘Stable’. Ratianle for the rating The rating continues to take into account trust’s experienced management team, comfortable asset quality, healthy earnings profile and significant growth in AUM during FY2022. MT’s AUM increased to Rs 178.48 Cr as on March 31, 2022 as compared to Rs 117.17 Cr as on March 31, 2021. The increase in AUM was on account of healthy disbursements in FY2022, with the total disbursements increasing to ~Rs 283 Cr. in FY2022 as compared to ~Rs 176 Cr. in FY2021. The AUM further stood at Rs. 206.43 Cr as on October 31, 2022. The company reported sound asset quality with GNPA at 0.04 percent as on March 31, 2022 as against 0.28 percent as on March 31, 2021. The rating is, however, constrained by MT’s geographically concentrated portfolio with a single state presence in Tamil Nadu, further the top 5 districts contribute more than 60 percent of the AUM. The rating also factors in relatively high leveraged capital structure with a gearing of 3.99 times as on March 31, 2022. Acuité takes cognizance of the trust’s limited access to credit bureaus and being an unregulated non- profit entity, it’s limitations of capital raising ability. |
| About the company |
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Mahasemam Trust (MT), incorporated in 1999, is a Madurai, Tamil Nadu-based trust engaged in microfinance activities. The trust is promoted by Dr.N.Sethuraman. The trust provides personal unsecured loans to its members across Tamil Nadu. MT follows a group based individual (JLG) lending methodology. Its borrowers primarily consist of artisans, MSME's and entrepreneurs both in rural and urban areas. The borrowers are organised in groups of 5-10 and each woman takes joint liability for other group members.
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| Analytical Approach |
| Acuité has considered the standalone financial and business risk profile of MT to arrive at the rating. |
Key Rating Drivers
| Strength |
| Experienced Management Team
Dr. N Sethuraman, President and Trustee of Mahasemam Trust, has over 2 decades of experience in the microfinance sector and has a strong understanding of the local markets and customer segments in Tamil Nadu. Dr. Sethuraman has an established track record in the NBFC-MFI space, after initially commencing the microfinance activities with MT, he set up a NBFC-MFI named S.M.I.L.E Microfinance Limited. However presently MT and S.M.I.L.E function independtly of each other. Dr. Sethuraman is supported by six trustees on board of trustees and the trust is presently run by Mr. Chandravel Rajan, CEO who is supported by Ms. Aseena Begum to manage day to day operations. Over the years, Mahasemam Trust has successfully expanded its operation to 74 branches spread across 12 districts in Tamil Nadu. The company’s AUM has grown from Rs 178.48 Cr as on March 31, 2022 as compared to Rs 117.17 Cr as on March 31, 2021. The AUM stood at Rs 206.43 Cr as on October 31, 2022. Acuité believes that the company’s growth prospects will be supported by the promoters experience in the industry. Adequate financial risk profile with diversified funding mix MT’s networth stood at ~Rs. 46 Cr. as on October 31, 2022 and reported a capital adequacy ratio (CAR) of 22.47 percent. The trust has been reporting profits over the past years, the trust reported a PAT of Rs 6.12 Cr during FY2022 improving from Rs 4.41 Cr during FY2021. Although the PAT levels of the trust were slightly affected during the pandemic in FY2021 as compared to Rs 5.94 Cr for FY2020, However, the trust reported healthy earnings profile in comparison with other NBFC-MFIs. For H1FY23, the PAT stood at Rs. 2.27 Cr. Consequently, improvement in RoAA and NIM were observed during the year, with the RoAA improving to 3.24 percent in FY2022 as compared to 2.60 in FY2021. The trust has a strong lender profile comprising majorly public sector banks. MT has demonstrated access to funding from public sector banks and has been able to obtain disbursements of ~Rs 110 Cr for FY2022 in the form of Term loans. The trust has further raised fresh debt Rs. 81 Cr as on September 30, 2022. Acuité believes, going forward, the ability of the company to mobilize low cost funding through debt to deploy the funds profitably will be a key rating monitorable. |
| Weakness |
| Geographical Concentration Risk
Mahasemam Trust’s operations are entirely based in Tamil Nadu, spread across 12 districts. And the top 5 districts account for more than 60 percent of the total AUM. This exposes the trust to high geographic concentration risk. The trust's performance is expected to remain exposed to competitive or political landscape in these regions and occurrence of events such as natural calamities, which may adversely impact the credit profile of the borrowers. Besides geography, the trust will be exposed to competition and any changes in the regulatory framework thereby impacting credit profile of Mahasemam Trust. Acuité believes that geographic concentration in its portfolio coupled with the inherent risk in microfinance segment will continue to weigh on the trust’s credit profile over the near to medium term. Risk inherent in the business model; limited access to capital & credit bureaus Mahasemam Trust (MT) is a Madurai, Tamil Nadu-based trust engaged in microfinance activities. The trust provides personal unsecured loans to its members across Tamil Nadu. MT, being an unregulated non-profit entity, has substantial limitations in terms of equity raising capabilities, any additional capital required is met by the trustees and the internal accruals of the trust. MT operates on a trust model, and therefore, cannot enlist its borrowers to credit bureaus, which enhances the risk of the borrowing profile. As per management discussion, to mitigate these risks the trust has an arrangement with an NBFC-MFI through which they access the microcredit report of their borrowers. The trust pays a nominal fees for obtaining the reports to the NBFC. Acuité believes that the trusts might face challenges to scale up their operations or expand into newer geographies due to its inability to access credit bureaus and its limited access to capital raising could |
| Rating Sensitivity |
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| Material Covenants |
| MT is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality among others. |
| Liquidity Position |
| Adequate |
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The trust has cash and bank balance of Rs 38.46 Cr as on September 30, 2022. The company has positive cumulative mismatches across time buckets as per ALM as on June 30, 2022
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| Outlook - Stable |
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Acuité believes that MT will benefit from its experienced promoters and management team and comfortable capitalisation buffers. The outlook may be revised to ‘Positive’ if there is significantly higher than expected growth in AUM while maintaining asset quality and improving profitability metrics. Conversely, the outlook may be revised to ‘Negative’ in case of significant deterioration in asset quality, profitability parameters or case of challenges faced in raising fresh capital shall lead to a negative rating bias.
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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 • 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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