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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 500.00 | ACUITE BBB- | Stable | Assigned | - |
| Non Convertible Debentures (NCD) | 2200.00 | PP-MLD | ACUITE BBB- | Stable | Upgraded | - |
| Total Outstanding Quantum (Rs. Cr) | 2700.00 | - | - |
| Rating Rationale |
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Acuité has upgraded the long-term rating of ‘ACUITE PP-MLD BBB-’ (read as ACUITE Principal Protected Market Linked Debentures Triple B minus) from ACUITE PP-MLD BB+ (Read as ACUITE Principal Protected Market Linked Debentures Double B Plus)on the Rs. 2200.00 Cr. principal protected market linked debentures of Provincial Finance & Leasing Company Private Limited (PFPL).
Acuité has assigned the long-term rating of ‘ACUITE BBB-’ (read as ACUITE Triple B minus) on the Rs. 500.00 Cr. Non Convertible Debentures of Provincial Finance & Leasing Company Private Limited (PFPL). The outlook is 'Stable' Rationale for the rating upgrade and assigned The rating upgrade takes in to consideration the improvement in profitability, capital infusion and increase in networth of Provincial Finance & Leasing Company Private Limited (PFPL). PFPL reported a PAT of ~Rs. 40.00 Cr. as on December 2022as against ~Rs. 0.04 Cr for FY22. There has been an infusion of Rs. 45.00 Cr. in capital, as confirmed by the company, in Q4FY23 and the company plans to infuse ~Rs. 68.00 Cr. further. The networth of the company has increased from ~Rs. 208 Cr as on March 31, 2022 to ~Rs. 399 Cr. as on December 31, 2022. The networth includes the premium charged on the PP MLDs also. 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. 5,298 Cr. as on February, 2023 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 times in medium term. Going forward, the ability of the company to timely infuse capital and scale up the AUM would be key credit monitorable. |
| About the company |
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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.
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| Analytical Approach |
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Acuite has taken standalone business and financial risk profiles of Provincial Finance & Leasing Company Private Limited.
About the rated instrument: The Rs. 2200 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. Rs. 500 Cr. is unsecured subordinated NCDs. |
Key Rating Drivers
| Strength |
| Experienced management team and synergies with parent?
Provincial Finance & Lease Company Private Limited (PFPL) is the nondeposit, 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 is also expected to follow the same strategy. 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. The AUM further increase to Rs. 5298 Cr. as on February, 2023. 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. 1,434 Cr. and Rs. 189 Cr. respectively as on February, 2023. 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 infused Rs. 45.00 Cr. in Q4FY23 and further Rs. 68.00 Cr is expected. |
| 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 times and would require capital support from the parent company Alpha Alternatives for its future growth plans. Going forward, the ability of the company infuse capital on time and scale up the AUM would be key credit monitorable |
| ESG Factors Relevant for Rating |
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PFPL, has a 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 capital markets to avoid fraud, insider trading and other anti-competitive behaviour. 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.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.PFPL maintains adequate disclosures with respect to the various board level committees mainly audit committee, nomination and renumeration committee along with stakeholder management committee. PFPL also maintains adequate level of transparency with regards to business ethics issues like related party transactions, investors grievances, litigations, and regulatory penalties for the company, if relevant.
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| Rating Sensitivity |
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| Material Covenants |
| None |
| Liquidity Position |
| Adequate |
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The companies liquidity is adequate and has maintaed cash and bank balances of ~Rs. 8.8 Cr. as on December, 2022. The balances with brokers stood at ~Rs.10.00 Cr.
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| Outlook : Stable |
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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.
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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): |
| None |
| 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 • Trading Entitie: https://www.acuite.in/view-rating-criteria-61.htm |
| Note on complexity levels of the rated instrument |
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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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