PR

Press Release
PROVINCIAL FINANCE AND LEASING CO PRIVATE LIMITED
September 23, 2022
Rating Assigned and Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Non Convertible Debentures (NCD)	1700.00	PP-MLD \| ACUITE BB+ \| Stable \| Reaffirmed	-
Non Convertible Debentures (NCD)	500.00	PP-MLD \| ACUITE BB+ \| Stable \| Assigned	-
Total Outstanding Quantum (Rs. Cr)	2200.00	-	-
Total Withdrawn Quantum (Rs. Cr)	0.00	-	-

Rating Rationale

Acuité has reaffirmed the long-term rating of ‘ACUITE PP-MLD BB+’ (read as ACUITE Principal Protected Market Linked Debentures Double B plus) on the Rs. 1700.00 Cr. principal protected market linked debentures of Provincial Finance & Leasing Company Private Limited (PFPL). The outlook is 'Stable'.

Acuité has assigned the long-term rating of ‘ACUITE PP-MLD BB+’ (read as ACUITE Principal Protected Market Linked Debentures Double B plus) on the Rs. 500.00 Cr. principal protected market linked debentures of Provincial Finance & Leasing Company Private Limited (PFPL). The outlook is 'Stable'.

The rating continues to factor in the parentage of PFPL (100 percent owned subsidiary of Alpha Alternatives Holdings Private Limited) and synergies arising from this association. The rating factors in track record & experience of the management team in managing investments across various asset classes. Alpha Alternatives commenced their operations in 2013 and have been managing assets worth Rs. 4,336 Cr. as on June 30, 2022 spread across equity, commodity and other alternative asset classes under 7 AIF, PMS and other schemes. PFPL is expected to benefit from the shared management expertise, risk management practices as well as shared operational & infrastructural support of Alpha Alternatives. PFPL the NBFC arm of Alpha Alternatives would be investing funds raised from investors via PP-MLD issue, the investments would be managed by fund managers from Alpha Alternatives and would follow similar strategies as currently adopted in the parent. While the investment strategy under PFPL will be focused on equity and commodity backed derivatives, the tested investment and risk management strategies at parent level will be critical for managing investments and scaling up AUM at PFPL level.
The rating is however, constrained by limited operational track record of PFPL and high leverage expectations as the leverage under PFPL would be around 5-6 times in medium term. Going forward, the ability of the company to profitably manage and scale up the AUM would be key credit monitorable.

About the company

Mumbai based, Provincial Finance & Leasing Company Private Limited (PFPL) is a registered non-deposit, systemically important NBFC and was acquired by Alpha Alternatives in 2019. The NBFC is a wholly owned subsidiary of Alpha Alternatives Holdings Private Limited. The company is promoted by Mr. Naresh Kothari through Kothari Family Private Trust. Alpha Alternatives (AA) is a Multi Asset Class, Proprietary Capital investing and Asset Management platform. The Group creates alternative investment products across Equities, Commodities and other alternative asset classes. The Group operates across multiple structures/licenses – Alternative Investment Fund (AIF), Portfolio Management Services (PMS) & NBFC.

Analytical Approach

Acuite has taken standalone business and financial risk profiles of Provincial Finance & Leasing Company Private Limited.
About the rated instrument: The Rs. 500 Cr. and Rs. 1700 Cr. Principal Protected Market Linked Debentures are commodity and equity linked debentures, where the returns are linked to capital market returns on other underlying securities/indices. The principal amount is subject to the credit risk of the issuer whereby the investor may or may not recover all or part of the funds in case of default by the issuer. The instrument is subject to model risk wherein, the securities created are on the basis of complex mathematical models involving multiple derivative exposures which may or may not be hedged and the actual behavior of the securities selected for hedging may significantly differ from the returns predicted by PFPL or Alpha Alternatives using such mathematical models.

Key Rating Drivers

Strength

Experienced management team and synergies with parent

Provincial Finance & Lease Company Private Limited (PFPL) is the non-deposit, systemically important NBFC arm of Alpha Alternatives Holdings Private Limited. PFPL was acquired by Alpha Alternatives in 2019. PFPL is not primarily involved in lending activities and is majorly engaged in investing funds raised from investors via PP-MLD issue, the investments would be managed by fund managers from Alpha Alternatives and would follow similar investing strategies as currently adopted in the parent. While the investment strategy for the previous issues under PFPL were focused on equity and equity backed derivatives, the current issue will be focused on commodity backed derivatives.
The holding company Alpha Alternatives is promoted by Mr. Naresh Kothari (Founder & Managing Partner) and is led by him and his team of experienced professionals. Mr. Naresh is a seasoned financial services professional with over two decades of experience in business building and capital markets. Prior to Alpha Alternatives, Mr. Naresh was one of the earliest Senior Partners at Edelweiss Financial Services. He has previously led teams for Equity Capital Markets business and also a leading Alternative Asset Management platform. Alpha Alternatives have shown growth in their AUM which grew to Rs. 3,502 Cr. as on March 31, 2022 from Rs. 1,182 Cr. as on March 31, 2020. These assets are managed through various strategies based on Arbitrage (incl. commodities), Absolute Return and Equity based and Structured Credit.
The holding company is planning to raise funds via PPMLD issuance in the NBFC which would further add to the growth of AUM on a consolidated basis. The proceeds from the issue will be invested through the Alpha Alternatives’s Equity Absolute Return (EQAR) strategy and Commodities Absolute Return (CAR) strategy. Both these strategies currently have an AUM of Rs. 1,318 Cr. and Rs. 110 Cr. respectively as on June 30, 2022. Apart from strategic and risk management synergies with the parent, PFPL would also benefit from the capital support from Alpha Alternatives. The holding company has committed an overall capital infusion of around Rs. 150.00 Cr. in PFPL and would be supporting the company for any future requirements.

Weakness

Susceptibility to uncertainties inherent in the capital markets

The company's operating performance is linked to the capital markets, which are inherently volatile as they are driven by economic and political factors as well as investor sentiments. All the proceeds from the PP-MLD issue will be invested in capital markets and derivatives. Also, the coupon payments in the form of returns are also highly dependent on the performance of the underlying securities and derivatives invested. Though investments in equity and commodity backed derivatives will be via liquid securities, the company and investments shall be exposed to gap down risk, and other market and liquidity risks.

High leverage expectancy

Alpha Alternatives’s track record of operating business at NBFC level is limited. The management plans to leverage PFPL around 5-6 times and would require capital support from the parent company Alpha Alternatives for its future growth plans. Going forward, the ability of the company to profitably manage and scale up the AUM would be key credit monitorable.

Rating Sensitivity

Operating performance
AUM growth
Any changes in management and ownership pattern
Changes in regulatory environment

Material Covenants

None

Liquidity Position

Adequate

The company’s liquidity is adequate and as a part of its strategy have maintained ~Rs. 520 Cr. in liquid funds and ~Rs. 300 Cr. in deposits as on March 31, 2022.

Outlook - Stable

Acuité believes PFPL will maintain a ‘Stable’ business risk profile over the medium term. The company will continue to benefit from its experienced management. The outlook may be revised to ‘Positive’ in case the company registers healthy growth in revenues, while achieving sustained improvement in operating margins. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the company’s revenues or profit margins, or in case of deterioration in the company’s financial risk profile and liquidity position.

Other Factors affecting Rating

None

Key Financials - Standalone / Originator

Particulars	Unit	FY22 (Actual)	FY21 (Actual)
Total Assets	Rs. Cr.	922.68	4.38
Total Income*	Rs. Cr.	1.18	0.43
PAT	Rs. Cr.	0.04	0.06
Networth	Rs. Cr.	208.01	4.21
Return on Average Assets (RoAA)	(%)	0.01	1.28
Return on Net Worth (RoNW)	(%)	0.04	1.33
Total Debt/Tangible Net Worth (Gearing)	Times	3.43	-
Gross NPA’s	(%)	-	-
Net NPA’s	(%)	-	-

*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-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
• Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm

Note on complexity levels of the rated instrument

https://www.acuite.in/view-rating-criteria-55.htm

Rating History

Date	Name of Instruments/Facilities	Term	Amount (Rs. Cr)	Rating/Outlook
20 May 2022	Non Convertible Debentures	Long Term	700.00	ACUITE PP-MLD BB+ \| Stable (Reaffirmed)
20 May 2022	Proposed Non Convertible Debentures	Long Term	1000.00	ACUITE PP-MLD BB+ \| Stable (Assigned)
17 Mar 2022	Proposed Non Convertible Debentures	Long Term	550.00	ACUITE PP-MLD BB+ \| Stable (Assigned)
17 Mar 2022	Proposed Non Convertible Debentures	Long Term	150.00	ACUITE PP-MLD BB+ \| Stable (Assigned)

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Rating
Not Applicable	INE0L6807013	Principal protected market linked debentures	25-03-2022	Not Applicable	09-04-2025	700.00	PP-MLD \| ACUITE BB+ \| Stable \| Reaffirmed
Not Applicable	INE0L6807039	Principal protected market linked debentures	19-08-2022	Not Applicable	03-09-2025	90.80	PP-MLD \| ACUITE BB+ \| Stable \| Reaffirmed
Not Applicable	INE0L6807021	Principal protected market linked debentures	27-05-2022	Not Applicable	11-06-2025	336.70	PP-MLD \| ACUITE BB+ \| Stable \| Reaffirmed
Not Applicable	Not Applicable	Proposed principal protected market linked debentures	Not Applicable	Not Applicable	Not Applicable	500.00	PP-MLD \| ACUITE BB+ \| Stable \| Assigned
Not Applicable	Not Applicable	Proposed principal protected market linked debentures	Not Applicable	Not Applicable	Not Applicable	572.50	PP-MLD \| ACUITE BB+ \| Stable \| Reaffirmed

Contacts

Analytical	Rating Desk
Mohit Jain Senior Vice President-Rating Operations Tel: 022-49294041 mohit.jain@acuite.in Shreyans Mehta Manager-Rating Operations Tel: 022-49294065 shreyans.mehta@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.