­Acuité has consolidated the business and financial risk profiles of AFSL and NFL (Hereinafter referred to as ‘Arman Group’) for arriving at the rating. The consolidation is in view of common promoters and management, integrated businesses, shared brand name, and significant operational and financial linkages between these entities.

­Established track record of operations with experienced promoters and management
AFSL has been engaged in the financing business since 1992 and has demonstrated a long track record of operations through various business cycles. Arman commenced its operations with asset backed finance lending in the state of Gujarat and has built a strong experience of 29 years in the industry. Following the RBI directive for creating a separate category of NBFC for lending to micro finance sector, the company was the first in India to obtain "NBFC-MFI" license for its wholly owned subsidiary - Namra Finance Ltd (Namra) on February 14, 2013. Accordingly, all the assets related to micro finance were transferred to Namra Finance Limited (NFL). In 2017, company began its MSME loan product segment.
The group has geographical presence in the states of Gujarat, Madhya Pradesh, Uttar Pradesh, Maharashtra, Uttarakhand, Rajasthan, Haryana and Bihar with a network of 336 branches spread across 120 districts as on March 31, 2023. The company is promoted by Mr. Jayendra Patel, Vice Chairman and Managing Director, who has a 25 years of senior managerial and board level experience in the finance sector. Mr. Patel is the founder member of Gujarat Finance Companies Association. He is supported by Mr. Aalok Patel, Joint Managing Director, who is also on the Board of the company and has more than 15 years of experience in the financial sector. Further, Mr. Alok Prasad is the present Chairman on the Board of AFSL, who is also on the Board of the company and is having 35 years of experience in regulatory, banking and financial services. He has been associated with MFIN as Founder Chief Executive Officer. The Board is well represented by nine directors with adequate and relevant experience in the corporate and finance domains.
Acuité believes that the established presence of the promoters and management coupled with effective guidance from the directors on the board, will support the business risk profile of the company in the near to medium term.

Increased scale of operations
Over the years, the company’s scale of operations has grown significantly, with a rise in AUM from Rs. 684.71 crore as on March 31, 2019 to Rs.1,943 crore as on March 31, 2023. Further, with a view to achieving deeper penetration, the group has in the past 4 years, expanded into newer regions. As such, the company’s branch size increased from 80 branches as on March 2017 to 336 branches as on March 31, 2023 which has gradually resulted in reduced concentration of AUM in the state of Gujarat (27.58 percent as on March 31, 2023). The company added 44 new branches during FY2023 and 53 new branches during FY2022. The company has three major segments- JLG (Micro-Finance through Namra Finance Limited), MSME and two wheeler loan, whereby MFI-JLG contributes 81.70 percent of the Total AUM as on March 31, 2023 followed by MSME (13.1 percent of the total AUM) and Two wheeler loans (3.13 percent of the total AUM).
Acuité believes that company has demonstrated the resilience to grow across various business cycles coupled with diversification in three segments.

Improving profitability; strong resource raising ability
The group's profitability improved in FY23 as marked by RoAA (on-balance sheet assets) of 5.78 percent (P.Y: 2.95 percent). The group reported a consolidated PAT of Rs. 93.81 Cr. in FY2023 (Rs. 31.72 Cr. in FY2022; Rs. 10.62 Cr. in FY2021). The improvement in earnings profile is also backed by increase in overall yield on advances through MSME financing as well as removal of interest rate cap on microfinancing. Acuité believes that company's ability to sustain the growth momentum and curb the credit costs will be a key monitorable. 
The group has established relationships with ~30 lenders; public and private sector bank and financial institutions. The debt profile of the group remains diverse with borrowings through Banks & SFBs (33 percent), DFIs (2 percent), NBFC/FIs (26 percent), borrowings through securitization (17 percent), ECB (9 percent) and debt securities (13 percent) as on March 31, 2023. Going forward, Acuité expects the group to continue to benefit from a diversified funding mix.

­Moderate asset quality; albeit improving
The outbreak of  COVID and the intermittent lockdowns  significantly impacted the credit profile of most of the borrowers thereby impacting asset quality during FY21. Given the challenges and stress experienced by vehicle and micro finance sector, company reported GNPA (on-book; consolidated) at 4.44 percent as on March 31, 2022 as against 4.70 percent as on March 31, 2021 (1.13 percent as on March 31, 2020). However, on account of improved collections and write-offs in FY23, the GNPA as on March 31, 2023 stood at 2.79 percent. The on-time portfolio (AUM basis) as on March 31, 2023 stood at 95.49 percent vis-à-vis 89.74 percent as on March 31, 2022. The provisioning on GNPA remained healthy at 94.39 percent as on March 31, 2023 (83.54 percent as on March 31, 2022).

Modest capital structure
The group’s net worth stood at Rs. 212.68 Cr. as on March 31, 2022 (Rs. 186.76 Cr. as on March 31, 2021). On account of capital infusion of Rs. 115 Cr. in Q2FY23 and internal accruals, the networth grew to Rs. 365.69 Cr. as on March 31, 2023. AFSL has adequate capitalization level with Capital Adequacy Ratio of 32.61 percent (standalone) as on March 31, 2023 (29.10 percent as on March 31, 2022). The group's consolidated gearing levels stood moderate at 4.39 times as on March 31, 2023 (P.Y: 4.65 times). Going forward, the group’s ability to timely raise equity capital to further aid the growth momentum remains a key rating monitorable.