Established Management:
RFL is engaged in extending loans to small business owners for income generation purpose in rural areas since 2014. The Company mainly operates in Tamil Nadu with a network of 9 branches as on December 31, 2023. The company is promoted by Mr. Srinivasan (Managing Director), Mr. Pon Bhuvaneswari (Promoter-Director) and Mr. Murugesh M (Promoter-Director). Mr. Srinivasan (MD) who has over two decades experience in the Exports of Garments and Textile. Mrs. Pon Bhuvaneswari actively manages the day to day operations of the company and branch. Mr Murugesh M is responsible for HR and Compliances. RFL has comfortable capitalization levels to support the future growth prospects. The company’s CAR stood at 31.13 percent as on December 31, 2023 (39.70 percent as on March 31,2023 and 85.71 percent as on March 31,2022). The company’s CAR reduced due increase in risk weighted assets. The promoters have collectively infused around Rs. 1.25 Cr. during FY2024.
The company reported an AUM of Rs 17.20 Cr. as on December 31, 2023 (Rs 12.05 Cr. as on March 31,2023 and Rs 5.59 Cr. as on March 31,2022). The company takes off-book exposure through Business Correspondence. It is a business correspondence partner for Usha Financial Services limited. The company reported an off book portfolio of Rs 4.64 Cr. as on December 31, 2023 (Rs. 2.2 Cr. as on March 31, 2023 from Rs. 1.38 Cr. as on March 31, 2022). The company’s asset quality was marked by on time portfolio of 96.28 percent with GNPAs of 0.81 percent as on December 31, 2023, supported by average overall collection efficiency of 90.82 percent for six months ended February 2024. The company reported GNPA of 0.81 percent as on December 31, 2023 and 0.83 percent as on March 31, 2023. The prudent underwriting policies adopted by the management has enabled the company to improve its asset quality.
Acuité believes that established presence of the promoters in the microfinance segment will be central to support the business risk profile of the company in the near to medium term.
Improvement in financial performance:
The company reported an AUM of Rs 17.20 Cr. as on December 31,2023 (Rs 12.05 Cr. as on March 31,2023 and Rs 5.59 Cr. as on March 31,2022). Improvement in earnings profile is due to increase in AUM. The company reported a PAT of Rs 0.36 Cr. during December 31, 2023 (Provisional) (Rs 0.20 Cr. during FY2023 and Rs 0.19 Cr. during FY 2022). The company reported a NIM of 11.41 percent as on March 31,2023 (13.60 percent as on March 31,2022). RoAA of the company stood at 2.41 percent as on March 31, 2023 (4.17 percent as on March 31,2022 and 4.00 percent as on March 31,2021).
Acuité believes that RFL will be able to sustain its financial performance and any impact on profitability metrics due to higher provisioning requirements would remain key monitorable. |
Modest Scale of operations; Geographical concentration risk:
RFL commenced its operations in 2014 and currently operates through a network of 9 branches located in 4 districts across one state namely, Tamil Nadu . Its Assets Under Management (AUM) stood at Rs. 17.20 Cr. as on December 31, 2023 as against Rs. 12.05 Cr. as on March 31, 2023. Of the total AUM of Rs. 17.20 Cr., on book portfolio comprised Rs. 12.56 Cr. (~73 percent) with the balance Rs. 4.64 Cr. (~27 percent) being off book portfolio. This growth in AUM in recent period is driven by management’s decision to increase its scale of operations. Against this backdrop, the company highly concentrated with Tamil Nadu alone contributing 100 percent of the overall AUM as on December 31, 2023. Resultantly, the company's performance is expected to remain exposed to competitive landscape in these areas and occurrence of events such as natural calamities may adversely impact the credit profile of the borrowers.
Acuité believes that the company’s modest scale of operations coupled with geographic concentration in the will continue to weigh on the company’s credit profile over the near to medium term.
Susceptibility to risks inherent to microfinance segment:
RFL primarily extends unsecured loans to economically challenged borrowers who have limited ability to absorb income shocks. Since financial assistance to economic challenged borrowers is a sensitive issue, from government stand point the regulatory dispensation in respect of the policies becomes relevant. Any changes in the regulatory environment impeding the ability of entities like RFL to enforce collections, etc will have an impact on its operational performance. Besides the regulatory risks, the inherent nature of the business renders the portfolios vulnerable to event risks such as natural calamities in the area of operations. Acuité believes that containing slippages while maintaining the growth in the loan portfolio will be crucial. |
