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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 400.00 | ACUITE BBB | Stable | Reaffirmed | - |
| Total Outstanding | 400.00 | - | - |
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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. 400.00 Cr. bank facilities of Navachetana Microfin Services Private Limited (NMSPL). The outlook is ‘Stable’
Rationale for the rating
The rating continues to factor in NMSPL’s healthy capitalization levels supported by regular equity infusion by promoters, healthy resource mobilization ability, comfortable asset quality metrics and improvement in AUM. While NMSPL’s CAR has reduced from 25.46 percent as on March 31, 2022 to 22.91 percent as on March 31, 2023 due to growth in the lending portfolio, the promoters have collectively infused around Rs. 22.84 Cr. during FY2022-23 and Rs 3.50 Cr. during FY2021-22. Additionally, the company has been able to raise resources from a diverse lender base and has been able to raise debt amounting to Rs. 186.70 Cr. during 9MFY2024. The AUM has increased sharply in the recent one year to Rs 1,425.11 Cr. as on December-2023 from Rs 1063.49 Cr. as on March 31, 2023 (FY22: Rs 331.12 Cr) primarily due to an uptick in off-balance sheet disbursements as a business correspondent partner. NMSPL has been able to maintain healthy asset quality despite its agriculture based borrower profile and rural focused operations. The company’s on-time portfolio stood at 98.08 percent with a GNPA(total book) of 0.79 percent and GNPA (own book) of 1.04 percent as on December 31, 2023. Likewise, average collection efficiency for six months ended December 31, 2023, stood at 92.09 percent. The rating is however, constrained by moderate financial performance, an expected increase in leverage levels, the geographic concentration and risks inherent to the micro finance sector. Acuité believes, going forward, the ability of the company to maintain comfortable capitalization levels with regular equity infusion, healthy resource raising ability and further augment its scale of operations while maintaining healthy profitability & asset quality will be a key rating monitorable. |
| About the company |
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Karnataka based Navachetana Microfin Services Private Limited (NMSPL) is a non-deposit taking NBFC-MFI. NMSPL is engaged in extending micro credit primarily to women borrowers through (JLG) model since 2009. The company is promoted by Mr. Nagendra Mali (Chairman & Managing Director). Mr. Mali has been engaged in microfinancing activities since 2006 under Navachetana Foundation which was originally established as Shri Doddaveereshwara Khadi and Village Industries Society in 1999. In 2008, the existing promoters acquired an NBFC Sree Santeshwara Credit and Investment Company Limited, renamed it as Navachetana Microfinance Services Private Limited and transitioned the microfinance business of Navachetana Foundation. The company operates through network of 161 branches spread across 38 districts in the state of Karnataka, Maharashtra and Tamil Nadu as on Dec 31, 2023.
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| Analytical Approach |
| Acuité has considered the standalone business and financial risk profile of NMSPL to arrive at the rating. |
| Key Rating Drivers |
| Strength |
| Established presence in micro-finance segment
NMSPL commenced its operations in 2009 extending micro-credit to women borrowers engaged in income generating activities under Joint Liability Group (JLG) model. The company offers individual loans to borrowers who have been previously part of any JLG group with good track record of repayment. NMSPL caters to rural and semi-urban areas of Karnataka, Tamil Nadu and Maharashtra. It has a network of 161 branches spread across 38 districts with an AUM of Rs. 1,425.11 Cr. as on Dec 31, 2023. NMSPL is promoted by Mr. Nagendra Mali who has been engaged in micro finance and rural development activities in Karnataka through Navachetana Foundation. Navachetana Foundation started its microfinance operations in 2006 mainly based on partnership model. In 2008 he acquired an existing NBFC Sree Santeshwara Credit and Investment Company Limited and re-named it as Navachetana Microfin Services Private Limited to provide an exclusive platform for financial inclusion efforts of Navachetana Foundation. NMSPL’ networth stood at Rs 84 Cr as on Dec 31, 2023 (Rs 71.91 Cr as on March 31,2023 and Rs 45.70 Cr as on March 31,2022). NMSPL’s CAR stood at 23.06 percent as on Dec 31, 2023. There was capital infusion by promoters to the tune of around Rs. 2.25 Cr during 9MFY2024 and Rs 22.84 Cr during FY2022-23. NMSPL has demonstrated access to funding from both banks and NBFC/FIs via term loans and BC partnership. Acuité believes that NMSPL will continue to benefit from its established presence and experience of the promoters in the microfinance segment Healthy growth in AUM and comfortable asset quality. Over the years, NMSPL has expanded its operations to build an AUM of Rs. 1063.49 Cr. as on March 31, 2023, from Rs. 331.12 Cr. as on March 31, 2022, and Rs 256.10 Cr. as on March 31, 2021. The AUM comprises on- book exposure of Rs. 303.95 Cr. and off-balance sheet exposure of Rs. 759.55 Cr. as on March 31, 2023. The company has reported an AUM of Rs 1,425.11 Cr as on Dec 31,2023 with on-book exposure of Rs 368.23 Cr and off-book exposure of Rs 1056.88 Cr. The company takes off-book exposure majorly through Business Correspondence. It is a business correspondence partner for IDFC First Bank, ESAF Small Finance Bank, Catholic Syrian Bank, Habitat Micro Build India Housing Finance and Jana Small Finance Bank. NMSPL began its business correspondence business in FY2019. The significant increase in off-book portfolio is majorly on account of high disbursements levels with its BC partnership with ESAF Small Finance Bank. NMSPL’s off-book exposure with ESAF Small finance bank stood at Rs 856.53 Cr. as on Dec 31, 2023, from Rs 617.05 Cr. as on March 31, 2023. The prudent underwriting policies adopted by the management has enabled the company to maintain a sound asset quality with on-time portfolio at 98.08 percent and gross non-performing assets (total book) at 0.79 percent and (own book) at 1.04 percent as on Dec 31, 2023. The sound asset quality was further reflected with an average collection efficiency of 92.09 percent for 6 months ended Dec 31, 2023. Acuité believes that going forward the ability of the company to maintain comfortable asset quality and growth momentum in AUM will be key rating sensitivity. |
| Weakness |
| Moderate financial performance; albeit improving
NMSPL’s financial performance has been broadly stable as a result of improvement in its PAT and NIM. NMSPL’s PAT increased to Rs 5.15 Cr as on March 31,2023 as compared to Rs 1.76 Cr as on March 31,2022. However, this improvement has been partially offset by NMSPL’s lower growth in its on-book loan portfolio . NMSPL has expanded its off-balance sheet exposure which has lower yields resulting in moderate increase in Return on Managed Assets (RoMA) which stood at 0.74 percent as on March 31,2023 (0.60 percent as on March 31,2022 and 0.70 percent as on March 31,2021). NMSPL’s Operating Expenses to Earning Assets (Opex) increased to 14.31 percent as on March 31, 2023 from 8.08 percent as on March 31, 2022 due to branch expansion (Opex as on Dec' 23 was 13.03). The company opened 83 new branches during FY2023, expanding its branch network to 148 branches as on March 31, 2023 as compared to 65 branches as on March 31, 2022. Acuité believes that NMSPL will be able to sustain its financial performance and any impact on profitability metrics due to higher provisioning requirements would remain key monitorable. Relatively higher leverage levels NMSPL’s is engaged in microfinance lending providing short term loans up to 18-24 months. The company extends micro-credit through the Joint Liability Group (JLG) model. NMSPL’ networth stood at Rs 84 Cr as on Dec 31,2023 (Rs 71.91 Cr as on March 31,2023 and Rs 45.70 Cr as on March 31,2022). The company’s leverage indicators stood at 4.14 times as on Dec 31, 2023 (4.23 times as on March 31, 2023 and 5.91 times as on March 31, 2022). The improvement in gearing was on account of capital infusion in the form of equity by promoters to the tune of around Rs. 22.84 Cr during FY2022-23 and Rs 3.50 Cr during FY2021-22. To support the growth momentum NMSPL would require further debt and considering the already leveraged capital structure the promoters may 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. Geographic concentration; susceptibility to risks inherent to microfinance segment NMSPL’s operations are concentrated in Karnataka which accounted for 89.16 per cent of its on-book loan portfolio as on Dec 31, 2023 and rest in Maharashtra at 8.34 percent. Generally, the risk profile of a microfinance company with a geographically diversified portfolio is more resilient compared to that of an entity with a geographically concentrated portfolio. The company's performance is expected to remain exposed to the 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 any changes in the regulatory framework. NMSPL has demonstrated healthy asset quality in the past with low Gross Non-Performing Assets (GNPA of total book) at 0.79 percent as on Dec 31, 2023 (0.76 percent as on March 31, 2022 and 0.63 percent as on March 31,2021), the company has made adequate provisions in case of any increase in slippages. Acuité believes that containing additional slippages while maintaining the growth in the loan portfolio will be key rating sensitivity. |
| Rating Sensitivity |
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| Liquidity Position |
| Adequate |
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NMSPL maintained cash and cash equivalents of Rs. 13.42 Cr. as on Dec 31, 2023. NMSPL’s overall liquidity profile remains adequate. The company’s assets and liabilities are well matched with no deficit in any of the time buckets upto 5 years. The company raised Rs. 186.70 Cr. debt from its lenders during 9MFY2024. Further its average collection efficiency stood at 92.09 percent for 6 months ended Dec 31,2023.
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| Outlook: Stable |
| Acuité believes that NMSPL will maintain a 'Stable' outlook over the medium term supported by its established presence in the microfinance segment along with demonstrated ability to maintain asset quality. 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 thereby impacting profitability metrics. |
| 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 • 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 |
| 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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