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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 20.00 | ACUITE A | CE | Negative | Reaffirmed | Stable to Negative | - |
| Bank Loan Ratings | 265.00 | ACUITE A- | Negative | Reaffirmed | - |
| Non Convertible Debentures (NCD) | 20.00 | ACUITE A- | Negative | Assigned | - |
| Total Outstanding Quantum (Rs. Cr) | 305.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed a long term rating of ‘ACUITE A (CE)’ (read as ACUITE A (Credit Enhancement)) on the Rs.20.00 Cr. of term loan facilities with Partial Credit Enhancement of Manba Finance Limited. The outlook has been revised from 'Stable' to ‘Negative’.
Acuité has reaffirmed a long term rating of ‘ACUITE A-’ (read as ACUITE A minus) to the Rs 265.00 Cr. bank facilities of Manba Finance Limited. The outlook is ‘Negative’. Acuité has assigned a long term rating of ‘ACUITE A-’ (read as ACUITE A minus) to the Rs 20.00 Cr. proposed non-convertible debentures of Manba Finance Limited. The outlook is ‘Negative’. Rationale for the rating The rating continues to factor in MFL’s experienced management and operational track record. The rating is further supported by comfortable capitalization levels marked by 33.45 percent with Tier 1 capital only as on Sept 30, 2022 (30.74 percent as on March 31, 2022). Acuité also takes note of the improved scale of operations, with the company disbursing Rs. 347.84 Cr as on 9MFY23, resulting into growth in the loan portfolio. The AUM stood at Rs 635.58 Cr as on December 31, 2022 as compared to Rs 495.82 Cr as on March 31, 2022. The credit profile of the company derives strength from its demonstrated ability to raise debt from diverse lenders. MFL raised fresh debt of ~Rs. 321 Cr. in FY2022 and ~Rs. 366 Cr. until 9MFY23 in the form of terms loans, CPs and PTCs. These strengths are partially off-set by moderate asset quality, as on December 31, 2022 , MFL’s GNPA stood at 4.18 percent with on time portfolio being 85.57 percent as on December 31, 2022, however improving from March 31, 2022 (GNPA: 4.94 percent) levels. Acuite takes cognizance of uptick in disbursements and improvement in delinquencies post September 2021, the quantum of GNPAs and delinquencies in softer buckets continues to remain high. Further, the company has low credit provisioning buffer which might impact its profitability. MFL’s NNPA stood at 3.49 percent as on December 31, 2022 as against 4.30 percent as on March 31, 2022 while its provision cover stood at low 16.41 percent as on December 31, 2022. Any further slippages shall require higher provisioning thereby impacting the profitability. The rating is further constrained by the company’s geographically concentrated operations in Maharashtra (~77 percent of the overall portfolio) as on September 30, 2022, however the company has made an attempt to diversify its operations in its other areas of operations by opening new branches in Rajasthan & Gujarat in Q2FY23. Going forward, the company’s ability to raise capital (both equity & debt), maintain capitalization & liquidity buffers, improve portfolio while containing delinquencies across different time buckets and its resultant impact on profitability metrics would remain key monitorables. The Rs 20.00 Cr term loan facilities have Partial Credit Enhancement (PCE) in the form of unconditional, irrevocable, payable on demand guarantee by Northern Arc (Credit Enhancer/ Guarantor) covering 15 percent of the initial principal value of facilities. The level of guarantee as a percentage of the aggregate outstanding principal of facilities is capped at 25 percent. Additionally, the facilities have security by way of a first ranking, exclusive and continuing charge on identified receivables with 110 percent margin in favour of Trustee. MFL shall make payments of interest and principal amounts due along with all other obligations (if any) under the Transaction Document by T-5 business days. In case of non-payment by MFL, the Trustee shall invoke the PCE. The final rating is assigned based on the fulfilment of the structure, terms and covenants detailed in the executed facility agreement, deed of guarantee, deed of hypothecation and other documents relevant to the transaction. |
| About the company |
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Incorporated in 1996, Mumbai based Manba Finance Ltd (MFL) is a RBI registered Non Deposit taking Non-Banking Finance Company (ND-NBFC), founded by Mr. Manish K Shah. The company is engaged in Two-Wheeler Financing, Used Two-Wheeler Financing and Used Car Financing. The company has also forayed into Personal Loans and Inventory Funding for 2- wheeler dealers. MFL has presence in 4 states namely Maharashtra, Gujarat, Chhattisgarh & Rajasthan with a network of 50 Branches as on December 31, 2022.
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| About Northern Arc Capital Limited (“Northern Arc”) |
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Northern Arc, previously known as IFMR Capital Finance Ltd., is a Non-Deposit taking NonBanking Financial Company (ND-NBFC) incorporated in 1989. It is involved in the placement (arranging funding for its clients via loan syndication, securitisation and assignment among others) and lending business. The company acts as a link between mainstream capital markets investors and highquality last mile lending institutions and businesses. The company’s business is categorized as finance sector exposure, i.e., microfinance, affordable housing finance, commercial vehicle finance, consumer finance, agri-finance and small business loans, and non-finance sector exposure, i.e., mid-market finance and corporates. Northern Arc reported Assets Under Management (AUM) of Rs. 6874 Cr. as on March 31, 2022 as against Rs. 5,220.87 Cr. as on March 31, 2021. Northern Arc’s asset quality improved with GNPA (90+dpd) at 0.51 percent as on March 31, 2022 as against 2.23 percent as on March Acuité Ratings & Research Limited www.acuite.in 31, 2021. The company’s Profit After Tax (PAT) stood at Rs. 163.73 Cr for the period ending FY2022 (Rs. 67.51 Cr as of FY2021). The company’s debt/equity ratio was 2.53 times as on March 31, 2021 as compared to 1.96 times as on March 31, 2020. However, the debt/equity ratio increased to 3.50 times as on March 31, 2022.
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| Standalone (Unsupported) Rating |
| ACUITE A-/ Negative |
| Analytical Approach Rationale for Guarantor's support |
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Acuité has considered the standalone financial and business risk profile of MFL to arrive at the rating.
Accounting for the Partial Credit Enhancement, Acuité has enhanced the rating of the facility to ACUITE A (CE)/ Negative. The Credit Enhancement (CE) in the rating is solely for the rated issue and its terms and structure. The notched up rating of the loan facility incorporates the PCE in the form of guarantee by Northern Arc Capital Limited (“Northern Arc”), acting as the Credit Enhancer. |
Key Rating Drivers
| Strength |
| Strength of underlying structure for the Rs 20.00 Cr proposed term loan
The transaction has a PCE in the form of unconditional, irrevocable, payable on demand guarantee by Northern Arc covering 15 percent of the issue size of the facilities. The level of guarantee as a percentage of the aggregate outstanding principal of the facilities is, however, capped at 25 percent. If due to the amortisation of the facilities, the credit enhancement percent exceeds 25 percent of the aggregate outstanding principal of the facilities, the Guarantee Cap shall be reduced to 25 percent of the aggregate outstanding principal of the facilities (Revised Guarantee Cap). The structure envisages that if the rating of MFL reaches A at a standalone level, the Credit Enhancement percent shall completely fall off. This will be subject to rating of the facility being maintained at A post the guarantee falls off. MFL shall make payments of interest and principal amounts due along with all other obligations (if any) under the Transaction Document on T-5 business days. In the event of failure of the Issuer to comply, on T-4 Business Days, the Trustee shall invoke the PCE and the credit enhancement shall be dipped on T-1 Business days. The facilities shall be secured by way of a first ranking, exclusive and continuing charge on identified receivables. The Hypothecated Receivables shall at all times be equal to the value of 1.1 times the outstanding amounts of the facility. In case of Issuer rating (as per Rating Agency’s view) downgrade to below BBB+, the borrower and the guarantors shall transfer the collections from the security pool to the lender by 4 PM IST on T-5 Business Days. Acuité believes that the structure provides adequate covenants to safeguard the interest of the investors. Experienced Promoter and Established presence in Two Wheeler Financing MFL has an established presence of over two decades in two-wheeler financing. MFL was founded and promoted by Mr. Manish Shah, having vast experience in the field of two- wheeler financing. Entire shareholding of the company is held by the promoter and promoter group entities. The company commenced its operations in Mumbai and has expanded its operations to other parts of Maharashtra, Gujarat, Rajasthan and Chhattisgarh with a network of 50 branches as on December 31, 2022. Over the years, the company has built relations with over 750 dealers and has acquired the preferred financer tag for Suzuki, Yamaha, TVS, Piaggio and Hero in its operating region. MFL’s Assets under Management (AUM) stood at Rs 635.58 Cr. as on December 31, 2022. The growth in the AUM is supported by way of diversified funding profile and equity infusions by the promoter group at regular intervals.
Acuité believes that MFL’s business profile will continue to benefit from the established presence in the area of operations backed by promoter experience. Comfortable Capitalization with adequate gearing Levels The company’s capitalization remained comfortable with overall Capital Adequacy Ratio (CAR) of 33.45 percent consisting of Tier I capital only as on Sept 30, 2022 (30.74 percent as on March 31, 2022). The capitalization levels are supported by way of Equity Infusion by promoter group at regular intervals and internal accruals. As on Sept 30, 2022 (provisional), the company’s net worth stood at Rs. 161.45 Cr. against the outstanding debt of Rs. 504.33 Cr. As on Sept 30, 2022 (provisional), the overall gearing stood at 3.12 times. The company has established relationships with ~25 lenders, public and private sector banks and financial institutions. MFL’s borrowing mix comprises of funding raised by way of Term Loans (Secured & Unsecured), NCDs (Secured & Unsecured) and Cash Credit. During 9MFY23, the company has been able to raise sufficient borrowings of Rs. 366.53 Cr. by way of Term Loans, PTCs, and Commercial Paper to support its business operations. Additionally, the company maintains adequate liquidity in the form of sufficient cash and bank balance of Rs. 73.59 Cr. as on Sept 30, 2022(provisional) to meet its funding requirements. Acuité expects the company to sustain its financial position on the back of its healthy capitalization buffers and maintaining a prudent capital structure. |
| Weakness |
| Moderate Asset Quality albeit improving
The company reported 90+DPD at 4.18 percent as on December 31, 2022 as against 4.94 percent as on March 31, 2022. The company also reported higher delinquencies in the softer buckets (30-90 DPD). The NNPA stood at at 3.49 percent as on December 31, 2022, the PCR stood at 16.41 percent for the same period. Any further slippages shall require higher provisioning thereby impacting the profitability. While the company’s current collections have been improving since Q3FY2022 on account of sale of repossessed vehicles, the same is expected to remain uncertain in the near term owing to the pandemic. Acuité believes, given the challenges, the company’s ability to manage the additional slippages while maintaining the portfolio collections will be crucial. Geographical Concentration: MFL is a Mumbai based NBFC having operations spread across four states namely, Maharashtra, Gujarat, Rajasthan and Chhattisgarh with network of 50 branches as on December 31, 2022. While the company expanded its presence to newer geographies like Gujarat, Rajasthan and Chhattisgarh its geographical exposure is concentrated in the Maharashtra contributing 77 percent of the AUM as on Sept 30, 2022. This exposes the company to geographical concentration risk. Thus, the company's performance is expected to remain exposed to competitive 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 company will be exposed to competition and any changes in the regulatory framework thereby impacting credit profile of MFL. Acuité believes that geographic concentration in its portfolio will continue to weigh on the company’s credit profile over the near to medium term. |
| Assessment of Adequacy of Credit Enhancement |
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MFL had adequate overall CAR stood at 36.01 percent consisting of Tier I CAR only. The capitalization levels are supported by way of Equity Infusion by promoter group at regular intervals and internal accruals. Thus, even after considering risks such as possible asset quality deterioration during the pandemic, Acuité believes that the credit enhancement will stand adequate in all scenarios and in the event of any requirement, Northern Arc will provide the necessary support.
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| ESG Factors Relevant for Rating |
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MFL belongs to the NBFC sector which continues to complement the efforts of banks in enhancing small ticket retail lending in India. Some of the material governance issues for the financial services sector are policies and practices with regard 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, responsible financing including environmentally friendly projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks. The entity has made adequate disclosures regarding its policies on related party transactions, vigil mechanism and whistle blowing. The board of directors consist of 2 independent directors out of a total of 6 directors. Audit Committee consists of 3 directors with majority of them being Independent Directors.
MFL does have one woman director on its board. In accordance with the guidelines issued by RBI, the entity has reinforced a Risk Management and mitigation mechanism that is responsible for identification, evaluation and mitigation of operational and strategic risks. MFL aims to enable people to fulfil their ambition of owning their own vehicle. MFL have made a mark by being completely ethical and transparent in all dealings and ensuring that customers are satisfied by services at all times. MFL supports community development through CSR projects mainly aimed at promotion of education, eradication of hunger, environmental sustainability, gender equality and rural development projects among other causes. |
| Rating Sensitivity |
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| Material Covenants |
| MFL 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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MFL’s overall liquidity profile remains adequate with no negative cumulative mis-matches in near to medium term as per ALM dated Sept 30, 2022. The company is in talks with various lenders to raise long term debt. The company has cash and bank balance of Rs. 73.59 Cr. as on Sept 30, 2022. The company raised Rs. 366 Cr. during 9MFY22. While the company future liquidity position will hinge upon the company’s ability to raise resources while continuing to achieve optimal portfolio collections.
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| Outlook - Negative |
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Acuité believes that MFL’s credit profile will be under pressure on account of significant impairment of asset quality and attaining optimal collection efficiency over the near term. The outlook may be revised to ‘Stable’ in case MFL is able to demonstrate a significant improvement in liquidity buffers through long term funding infusion, either through debt or equity and better than expected performance in maintaining asset quality and growth in the portfolio. The rating may be downgraded if the company faces challenges in raising fresh equity or long term debt funding commensurate with its near term business requirements. Any further deterioration in AUM or profitability or asset quality will also impart a negative bias to the rating.
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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 • Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.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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