PR

Press Release
PAUL MERCHANTS FINANCE PRIVATE LIMITED
January 19, 2023
Rating Assigned

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	100.00	ACUITE A- \| Stable \| Assigned	-
Total Outstanding Quantum (Rs. Cr)	100.00	-	-
Total Withdrawn Quantum (Rs. Cr)	0.00	-	-

Rating Rationale

Acuite has assigned the long term rating of ‘ACUITE A- (read as ACUITE A minus) on the Rs 100 Cr BLR facilities of Paul Merchant Finance Private Limited (PMFPL). The outlook is ‘Stable’.

Rationale for the rating
The rating derives strength from PMFPL’s strong parentage through Paul Merchant Limited, the NBFC (PMFPL) is a 100 percent subsidiary of the parent company, and expectations of continued support going forward. By virtue of majority ownership, PMFPL also enjoys managerial and financial synergies with Paul Merchant group. The rating further derives strength from PMFPL’s strategic importance for the parent company given that the NBFC arm provides business & revenue diversification. Acuite also takes cognizance that the promoter will maintain majority ownership in PMFPL. The parent company Paul Merchant Limited (Listed) has a total networth of ~Rs. 490 Crore and a market cap over Rs. 145 Crore as on September 30, 2022.
The rating also takes into consideration the significant growth in PMFPL’s assets under management (AUM) over the last year, leading to improved and healthy profitability metrics. PMFPL reported an AUM of Rs. 477.52 Cr as on March 31, 2022 vis-à-vis Rs. 375.08 Cr as on March 31, 2021. The AUM further scaled to Rs. 553.16 Cr as on September 30, 2022. The NBFC reported PAT of Rs. 20.98 Cr as on March 31, 2022 and has reported PAT of Rs. 10.30 Cr as on September 30, 2022. The rating also factors in company’s sound asset quality and robust risk management practices. PMFPL reported gross non-performing assets (GNPA) of 1.17 percent as on September 30, 2022.
The rating is however constrained by modest scale of operations & geographic concentration in the northern states of India. (Punjab & Haryana constitute ~90 percent of the total loan portfolio). Going forward, dilution in promoter support, movement in asset quality along with scale up in business operations are key rating sensitivities.

About the Company

Paul Merchants Finance Private Limited, a venture of Paul Group of Companies was founded in the year 2010. The flagship company of the group, Paul Merchants Ltd is a Public Limited Company, listed on BSE. Paul Merchants Finance Private Limited is 100% subsidiary of Paul Merchants Limited. The company has 84 branches spread across the states of Punjab, Haryana, UP, Uttarakhand, J & K, Chandigarh, and Rajasthan. PMFPL reported an AUM of Rs. 553.16 Cr as on September 30, 2022.

About the Group

Paul Merchants Limited (PML) is the flagship Company of renowned ‘PAUL Group of Companies’, a conglomerate having interests in varied fields including Foreign Exchange, Tours & Travels, International Money Transfer, Domestic Money Transfer, etc. The Company is a Publicly Listed Company with Bombay Stock Exchange Limited. It holds license issued by Reserve Bank of India to act as Authorized Dealer Category II and is a Sub-Agent of EBIX Money Express (P) Ltd for providing inbound International Money Transfer services. Further PML is an IATA accredited Travel Agency.

Analytical Approach

Extent of Consolidation

•Full Consolidation

Rationale for Consolidation or Parent / Group / Govt. Support

Acuité has taken consolidated view on the business and financial risk profile of PAUL MERCHANTS LIMITED, and its subsidiaries (Paul merchants Finance Private Limited and PML Realtors Private Limited) along with its joint Ventures (Horizon Remit SDN. BHD Malaysia, Paul Innovations LLP and Paul Tech Park LLP) (Paul Innovations LLP ,Paul Tech Park LLP till 31.12.2021). This consolidation is in the view of the common promoters, shared brand name and strong financial and operation synergies.

Key Rating Drivers

Strength

Promoter support and synergies arising from association with Paul Merchant Group
Paul Merchant Limited holds 100 percent stake in Paul Merchant Finance Private Limited), PMFPL enjoys managerial and financial synergies with the group. Paul Group made a strategic investment in PMFPL, and the Group will continue to have a controlling stake in the business. The credit profile of PMFPL derives significant financial flexibility from being a part of the group. PMFPL has been receiving periodical support from its promoters over the years. PML has infused a total capital of ~Rs. 140.76 And Rs. 221 Cr in the form of long-term unsecured loan as on September 30, 2022 allowing the company to function with lower external borrowings in the initial years. Furthermore, PMFPL is expected to receive fundamental support from the group and promoters considerably. The Promoters of the Group are the directors of PMFPL which provides a certain visibility on operational and financial support from the Group. Mr. S. Paul, promoter of the Group, has around 3 decades of experience in foreign exchange & financial market. He along with support from professionals from various business verticals has played a vital role in building PMFPL’s current scale of operations.
Acuité believes that the company’s growth prospects will be supported by the promoters experience in the industry along with their demonstrated track record of resource raising ability.

Comfortable capital structure with adequate gearing levels
The Company has comfortable capitalization levels to support the near to medium term growth prospects. The capitalization levels of PMFPL comprises entirely of Tier I capital, where CRAR stood comfortable at 41.34 percent as on September 30, 2022. The same stood at 45.14 percent in FY2022. The company’s capital structure is supported by a net worth of Rs. 192 Cr. as on September 30, 2022 with total debt of ~Rs. 382 Cr. resulting in a gearing of 1.99 times as on September 30, 2022 as against 1.74 times as on March 31, 2022, which provide headroom for near term growth.
Acuité expects the capital structure to remain healthy with the comfortable gearing levels considering the additional borrowings.

Adequate Earnings Profile
At group level, the businesses can be categorized into fund based (comprising revenues from lending services carried out by the NBFC arm (PMFPL)) which contributes nearly 50 towards the bottomline in FY2022 and fee based (which includes the forex business carried out by the parent company Paul Merchant Limited) contributes the other half, with marginal contributions from its other subsidiaries & joint ventures. On a consolidated level, the group reported a profit of Rs. 40.18 Cr as on March 31, 2022 improving from Rs. 33.89 Cr as on March 31, 2021. The improved profitability is on account of resumption of international trade & travel which had disrupted during the pandemic, thus increasing transactional volumes in the forex business.
On a standalone basis, PMFPL’s profitability indicators were healthy marked by Net Interest Margin (NIM) which stood at 12.69 percent as on March 31, 2022. The NBFC reported a PAT of Rs 20.98 Cr as on March 31, 2022 vis-à-vis Rs 19.78 as on March 31, 2021. Further, the PAT stood at Rs 10.30 Cr as on September 30, 2022. PMFPL’s loan portfolio has grown steadily owing to healthy disbursement levels. The company’s overall disbursement remained healthy despite the impact of covid pandemic, with the company disbursing Rs 783.89 Cr and Rs 754.73 Cr during FY2021 & FY2022 respectively. Further, the disbursement stood at Rs. 476 Cr as on H1FY2023.
Acuité believes the earning profile of Paul Merchant Group from the non-fund based business operations would remain susceptible to inherent risks in foreign exchange market and overall economic environment, while its fund based business operations would continue to drive the group’s future growth trajectory.

Weakness

Geographically concentrated operations

The activities of NBFCs, like PMFPL are exposed to geographical concentration risks. PMFPL has presence in seven states, however the top 2 states (i.e Punjab and Haryana constitute nearly 90 percent of the total loan portfolio). PMFPL has a total of 76 branches as on September 30, 2022 majorly spread across these two states. This exposes the company to high 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.
Acuité believes, that moderate scale of operations coupled with geographic concentration in its portfolio will continue to weigh on the company’s credit profile over the near to medium term.

ESG Factors Relevant for Rating

Paul Merchant Limited (PML), has a diversified revenue stream with a majority portion accruing from the financial services sector. Adoption and upkeep of strong business ethics is a sensitive material issue for the financial services business linked to foreign exchange market and lending activities. Other important governance issues relevant for the industry include management and board compensation, board independence as well as diversity, shareholder rights and role of audit committee. As regards the social factors, product or service quality has high materiality so as to minimise misinformation about the products to the customers and reduce reputational risks. For the industry, retention, and development of skilled manpower along with equal opportunity for employees is crucial. While data security is highly relevant due to company’s access to confidential client information, social initiatives such as enhancing financial literacy and improving financial inclusion are fairly important for the financial services sector. The material of environmental factors is low for this industry. The company’s board comprises of a total of six directors. PML maintains adequate disclosures with respect to the various board level committees mainly audit committee, nomination and renumeration committee along with stakeholder management committee. PML also maintains adequate level of transparency with regards to business ethics issues like related party transactions, investors grievances, litigations, and regulatory penalties for the group, if relevant. In terms of its social impact, PML is actively engaged in community development programmes through its CSR committee.

Rating Sensitivity

Movement in asset quality
Movement in liquidity buffers
Continued funding support from promoters as well as capital raising ability
Changes in regulatory environment

Material Covenants

PMFPL is subject to covenants stipulated by its lenders in respect of parameters like capital structure, profitability, among others.

Liquidity Position

Adequate

PMFPL has well matched profile as on September 30,2022 with no negative cumulative mismatches reported upto 1 year. The company has cash and bank balance of Rs 7.17 crores as on September 30, 2022. Acuité takes note that the company’s ability to raise fresh funds in a timely manner will be important from a liquidity perspective.

Outlook - Stable

Acuité believes that Paul Merchant group will maintain ‘Stable’ credit risk profile over the medium term supported by the group's well-established market position in the domestic capital markets and experienced management. The outlook may be revised to 'Positive' in case of a significant and sustained growth in the scale of operations while improving its profitability and gearing metrics. Conversely, the outlook may be revised to 'Negative' in case the company faces challenges in raising fresh equity or long term debt funding commensurate with its near-term business requirements and higher than expected deterioration in asset quality and profitability.

Other Factors affecting Rating

None

Key Financials - Standalone / Originator

Particulars	Unit	FY22 (Actual)	FY21 (Actual)
Total Assets	Rs. Cr.	511.06	395.68
Total Income*	Rs. Cr.	58.97	46.12
PAT	Rs. Cr.	20.98	19.78
Net Worth	Rs. Cr.	181.79	162.22
Return on Average Assets (RoAA)	(%)	4.63	5.81
Return on Average Net Worth (RoNW)	(%)	12.20	12.88
Debt/Equity	Times	1.74	1.37
Gross NPA (Owned portfolio)	(%)	0.86	0.46
Net NPA (Owned portfolio)	(%)	0.58	0.20

*Total income equals to Net Interest Income plus other income.

Key Financials (Consolidated)

Particulars	Unit	FY22 (Actual)	FY21 (Actual)
Total Assets	Rs. Cr.	646.88	532.93
Total Income*	Rs. Cr.	177.26	120.04
PAT	Rs. Cr.	40.18	33.89
Net Worth	Rs. Cr.	466.89	426.77
Return on Average Assets (RoAA)	(%)	6.81	6.87
Return on Average Net Worth (RoNW)	(%)	8.99	8.26
Debt/Equity	Times	0.28	0.19
Gross NPA (Owned portfolio)	(%)	-	-
Net NPA (Owned portfolio)	(%)	-	-

*Total income equals to Net Interest Income plus other income.

Status of non-cooperation with previous CRA (if applicable)

None

Any Other Information

None

Applicable Criteria

Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria53.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

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.

Rating History :

Not Applicable

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Complexity Level	Rating
State Bank of India	Not Applicable	Working Capital Term Loan	Not available	Not available	Not available	100.00	Simple	ACUITE A- \| Stable \| Assigned

Contacts

Analytical	Rating Desk
Mohit Jain Senior Vice President-Rating Operations Tel: 022–49294017 mohit.jain@acuite.in Nitin Chavan Analyst-Rating Operations Tel: 022-49294065 nitin.chavan@acuite.in	Varsha Bist Senior Manager-Rating Operations Tel: 022-49294011 rating.desk@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité.