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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 725.00 | ACUITE BBB+ | Stable | Downgraded | Removed from Rating Watch | - |
| Non Convertible Debentures (NCD) | 310.00 | ACUITE BBB+ | Stable | Downgraded | Removed from Rating Watch | - |
| Total Outstanding | 1035.00 | - | - |
| Total Withdrawn | 0.00 | - | - |
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Rating Rationale |
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Acuité has downgraded the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) to ‘ACUITE BBB+’ (read as ACUITE triple B plus) on the Rs. 725 crore bank facilities of Midland Microfin Limited (MML). The outlook is 'Stable'. The rating is removed from rating watch.
Acuité has downgraded its long-term rating at 'ACUITE A-' (read as ACUITE A minus) to ‘ACUITE BBB+’ (read as ACUITE triple B plus) on the Rs. 310.00 crore Non-Convertible Debentures of Midland Microfin Limited (MML). The outlook is 'Stable'. The rating is removed from rating watch. Rationale for Rating Acuite, vide its press release dated 5th November, 2024, had placed the rating on 'Rating Watch with Developing Implications' on account of breach of certain covenants for the issued NCDs. On seeking clarity from the company, it is noted that over 50 percent of the debenture holders have already provided waiver/expected to provide waiver within this month, on these covenants for FY25. Hence, the rating has been removed from rating watch. The downgrade in the rating factors a significant deterioration in asset quality and collection efficiency, which is due to the ongoing stress in the micro-finance (MFI) segment. The asset quality has deteriorated, marked by a GNPA of 4.97 percent as on October 31, 2024, whereas the GNPA was 2.93 percent as on June 30, 2024. The total zero plus dpd for Oct '24 stands at over 13 percent. Since lower collection efficiency rates is one of the predominant factors of stress in the MFI segment, MML has also struggled in this facet where collection efficiency has declined to ~87 percent.
The rating continues to factor in company’s established presence in the areas of operations, experienced management, and representation of institutional investors on the MML’s board. The rating further takes into account the improvement in company’s AUM and its improved capital structure supported by regular capital infusion by its promoters. Midland Microfin Limited’s AUM grew by ~42 percent to Rs. 2543.25 crore as on March 31, 2024 from Rs. 1789.45 Cr. as on March 31, 2023. The AUM stands at Rs. 2,553.34 Cr. as on June 30, 2024 with a PAT of Rs. 24.03 Cr. during the first quarter of FY25. During FY24, the company received a capital infusion of Rs. 71.02 crore from its existing shareholders and ICICI Bank in the form of Compulsorily convertible preference shares and equity, resulting in improvement in its gearing levels at 4.06 times as on March 31, 2024 as against 4.50 times and 4.60 times as on March 31,2023 and March 31, 2022 respectively. The leverage is reported at 4.35 times as on June 30, 2024. The ratings also considers the company’s adequate capitalization profile with capital adequacy ratio (CAR) at 28.34 percent as on March 31, 2024. Going forward, the company’s ability to maintain its capital structure through capital infusions will remain a key rating sensitivity. The above strengths are partially offset by the increased slippages and higher credit costs in FY24 coupled with the inherent risks in the micro finance segment and modest capital structure. Going forward, Acuité believes that the company's ability to timely infuse capital and profitably scale up its portfolio while maintaining asset quality pressures would be a key rating monitorable. |
| About the company |
| Punjab based, Midland Microfin Limited (MML) is an NBFC-MFI engaged in providing microcredit to women borrowers via Joint Liability Group (JLG) model. The company is promoted by Mr. Amardeep Singh Samra who acquired an existing NBFC - Sajan Hire Purchase Private Limited in 2010 and re-named it to Midland Microfin Limited. The company commenced its operation in Jalandhar Punjab in 2011 and since then has expanded its presence in 12 states across the northern region. MML currently operates in 209 districts with a branch network of 436 branches as on March 31, 2024. |
| Unsupported Rating |
| Not applicable |
| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of MML. |
| Key Rating Drivers |
| Strength |
| Established presence in the areas of operations MML commenced its microfinance operations in 2011, extending micro-credit to women borrowers engaged in income generating activities under Joint Liability Group (JLG) model. The company caters to rural and semi-urban areas where the borrowers are mainly engaged in agri and agri allied activities and providing essential services. MML commenced its operations in Punjab and over the years has expanded its presence in other states namely Bihar, Rajasthan, Haryana, Uttar Pradesh, Jharkhand, Himachal Pradesh, Gujarat, Madhya Pradesh, Uttarakhand and West Bengal. The company has presence in 209 districts with a network of 436 branches with an asset under management (AUM) of Rs. 2,543.25 Cr. as on March 31, 2024. MML is promoted by Mr. Amardeep Singh Samra (Managing Director) who has been previously engaged in asset financing, hire-purchase and leasing businesses. Mr. Samra purchased an existing NBFC - Sajan Hire Purchase Private Limited in 2010 and renamed it to Midland Microfin Limited. The company is led by Mr. Samra who is supported by other members on the board which comprise Mr. Vijay Kumar Bhandari, ex- GM Central Bank of India, having around three decades of experience in banking, Mrs. Kamna Aggarwalla, ex Chairperson of the Confederation of Indian Industry (CII), Punjab amongst others. Private equity investor Kitara Capital have board representation and MML benefits from their expertise. Mr. Sachin Kamath founder member of Kitara Capital International Limited is on the board of MML. The company has on-boarded Mr. Praveen Kumar Gupta as an Independent Director who has over 3 decades in the banking sector to further strengthen their management board. Acuité believes that MML will continue to benefit from its established presence and experience of the promoters in micro finance segment. Demonstrated fund raising ability MML’s networth stood at Rs. 487.86 Cr. as on March 31, 2024 , as compared to Rs.347.57 Cr. as on March 31, 2023 and Rs. 270.85 crore as on March 31, 2022. The company has demonstrated fund raising ability by raising funds from private equity investor and promoter group. Over the last four years the company has raised ~224 crore of capital from its investors in the form of equity or Compulsorily convertible preference shares (CCPS). Further, during FY24, MML received a capital infusion of Rs. 71.02 crore from its existing shareholders and ICICI Bank in the form of Compulsorily convertible preference shares and equity. MML received sanctions totalling to ~Rs. 2,157 Cr. during FY2024 in the form of term loans and NCDs from Banks & NBFC/FI’s throughout the year. MML has demonstrated its fund raising ability with access to funds from Banks, NBFC/FI’s, External commercial borrowings, NCD’s and also securitization. Acuité believes that the company’s growth prospectus will be supported by promoter’s experience in the industry along with their demonstrated track record of resource raising ability. Sustained growth in AUM and profit ability MML’s AUM growth during FY24 led by expansion in newer geographies and thereby also reducing its overall geographical concentration. The company has expanded its overall network to 436 branches in 209 districts as on March 31,2024. he AUM stands at Rs. 2,553.34 Cr. as on June 30, 2024 with a PAT of Rs. 24.03 Cr. during the first quarter of FY25. The AUM of the company stood at Rs. 2,543.25 crore as on March 31,2024 as against 1,789.45 crore as on March 31, 2023 and Rs. 1,137.42 crore as on March 31, 2022. The company’s AUM comprises of a mix of on book and off book exposure. MML takes off book exposure through securitized transactions like Pass through Certificates (PTC) and Direct Assignments. As a result of the increased scale, the profitability of the company has improved reflected by improvement in Return on Average Assets (RoAA) and Net Interest Margins (NIM). The ROAA for FY24 stood at 3.14 percent as against 2.64 percent for FY23. The Net interest Margins of the company improved to 15.10 percent for FY24 as against 15.62 percent for FY23. The profit after tax for FY24 stood at Rs. 72.15 crore as against Rs. 46.83 crore for FY23. |
| Weakness |
| Deteriorating asset quality The asset quality has deteriorated, marked by a GNPA of 4.97 percent as on October 31, 2024, whereas the GNPA was 2.93 percent as on June 30, 2024. The total zero plus dpd for Oct '24 stands at over 13 percent. Since lower collection efficiency rates is one of the predominant factors of stress in the MFI segment, MML has also struggled in this facet where collection efficiency has declined to ~87 percent. There is a sharp increase in GPNA from 0.06 percent in FY 23 to 2.97 percent in FY 24 is largely on account of factors such as expectation of loan waivers to be extended by RBI, farmer’s protests and floods. Acuite believes that the ability of the company to profitably scale-up its operations while maintaining healthy asset quality will be key monitorable. Modest albeit improving capital structure MML is engaged in microfinance lending providing short term loans up to 12-24 months. The company extends micro-credit through the Joint Liability Group (JLG) model. The company’s networth stood at Rs. 487.86 Cr. and total borrowings at Rs. 1,982.77 Cr. as on March 31, 2024 which translates into a gearing of 4.06 times. The gearing as on June 30, 2024 stands at 4.35 times. While the gearing has seen a sequential improvement the capital structure of the company continues to remain modest. The improvement seen in the capital structure is supported by regular capital infusions by the promoters and investors and increased accretion of profits to reserves. To support the growth momentum MML would require further debt and in order to maintain the capital structure the promoters might be required to infuse additional equity to support any future business growth. Acuité believes that company’s ability to manage its gearing will be a key monitorable. Inherent risk in microfinance segment |
| ESG Factors Relevant for Rating |
| Midland Microfin Limited (MML) belongs to the NBFC-MFI sector which facilitates lending to the unbanked population. 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 maintains adequate transparency in its business ethics practices as can be inferred from the entity’s disclosures regarding related party transactions, vigil mechanism and whistle blower policy. The board of directors of the company comprise of 8 directors out of which 3 are independent directors and 1 nominee director. The audit committee is with the objective to monitor and provide an unbiased supervision of the management’s financial reporting process. MML also maintains transparency in terms of disclosures pertaining to interest rate policy and its adherence to Fair Practice Code as disseminated by Reserve Bank of India's circular. MML aims to empower women by providing micro loans to help them generate additional income opportunities, hence making an economic contribution by way of financial inclusion. It continues to work on several community development initiatives and has also worked on empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centers and such other facilities for senior citizen and measures for reducing inequalities faced by socially and economically backward groups. |
| Rating Sensitivity |
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| All Covenants |
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The Issuer shall, commencing from the Effective Date until the Final Settlement Date:
(a) Maintain a Capital Adequacy Ratio of at least 17% (seventeen percent) or such higher threshold as may be prescribed by the RBI from time to time; (b) Maintain a minimum Net Worth of INR 306,00,00,000 (Indian Rupees Three Hundred and Six Crore); (c) GNPA Net of Write offs: The company shall maintain ratio A:B of not more than 4.5% where A is the GNPA net of write offs (i.e., loans written off over last 12 months) and B is the AUM, and such determination is multiplied by 100 and followed by the “%” symbol. (d) PAR 30: The Company shall maintain ratio A:B of not more than 7%, where A is the Portfolio at Risk over 30 days and B is the Asset Under Management, and such determination is multiplied by 100 and followed by the "%" symbol (e) Loan Loss Coverage Ratio: The Company shall maintain ratio A:B of not less than minimum as per RBI-NBFC MFI norms, where A is Loan Loss Reserves and B is the sum of PAR 90 pre write off and Restructured Loan, and such determination is multiplied by 100 and followed by the "%" symbol (f) Company shall not report losses in any quarter. (g) Leverage (own book) of max 5.5x; leverage (including managed book) of max 7x. (h) Own book concentration: The Company shall maintain ratio A:B of not less than 75%, where A is the own book assets and B is the Asset Under Management, and such determination is multiplied by 100 and followed by the "%" symbol (i) Related Party exposure should not cross 10% of net worth, unless prior written approval from investor has been taken (j) Maintain minimum external credit rating of BBB+ (Stable) (k) Ensure and procure that the Issuer maintains a positive profit after tax (PAT) level (determined in accordance with Applicable Accounting Standards). This covenant shall be tested on an annual basis; (l) Ensure and procure that the Issuer does not report a loss for 3 (three) consecutive financial quarters (determined in accordance with Applicable Accounting Standards); (m) Comply with such other financial covenants as may be agreed between the parties. |
| Liquidity Position |
| Adequate |
| MML’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 has maintained cash and bank balances of Rs. 212.08 Cr. as on March 31,2024. The borrowings of MML have an average maturity of 24 to 48 months for its term loans. While, the average lending tenure of ~12 to 24 months. Hence, there is inherent financial flexibility in the company. Acuité believes that the liquidity profile will continue to benefit from funding support from its promoters. |
| Outlook: Stable |
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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): |
| 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 |
| Note on complexity levels of the rated instrument |
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