• ­Established presence in microfinance lending coupled with experienced management and reputed investors, healthy growth in AUM

SML, a Delhi based NBFC-MFI, commenced microfinance lending to woman borrowers organized in Joint Liability Groups in 2016. The company is also engaged in extending individual micro business loans to women entrepreneurs in rural and semi-urban areas for income-generating activities. SML has well diversified portfolio spread across 21 states. As on May 31, 2022, Uttar Pradesh accounted for ~21 percent of portfolio, followed by Bihar for ~16 percent and ~9 percent for Punjab and ~8 percent for Haryana, and ~6 percent for Rajasthan, and remaining accounting for other states like Odisha, Assam, Madhya Pradesh, Jharkhand, Tamil Nadu amongst others.
SML is managed by Mr. Vivek Tiwari (Managing Director, CEO & CIO). He has nearly two decades of experience in the microfinance space, social entrepreneurship, and impact investing. Prior to SML, Mr. Tiwari had about nine years of experience in Satin Credit Care Network limited (SCCL) as Chief Operating Officer. 
SML’s equity shareholding includes Mr. Tiwari share (29.70 percent), Gojo & Company Inc (50.58 percent), Dia Vikas Capital Private limited (10.49 percent) and remaining 9.23 percent held by promoter’s family, friends, employees, and SATYA Employee Welfare Trust, as on September 30, 2022. Gojo & company, Inc invested in SML, in from of compulsorily convertible preference capital, will be converted to equity which lead to increase its shareholding to 50.58 percent as on September 30, 2022 from 49.54 percent as on March 31, 2021. Gojo & Company, Inc, a Tokyo based company, established in July 2014 has supported microfinance institutions in Cambodia, Sri Lanka, Myanmar and India. It has been actively involved in providing capital infusion to SML since its inception. SML’s board comprises 8 members with one Managing Director, four Independent Director, one non- executive Director and two Nominee Directors. The Board of directors has a vast industry experience. The MD, CEO& CIO has been involved in microfinance and development sector for nearly 20 years and was associated with Satin Creditcare Network Ltd as the COO. The management has a good experience in the microfinance industry. SML’s board has representation from Gojo & Company, Inc. (Mr. Sanjay Gandhi & Mr Taejun Shin). Mr. Sanjay Gandhi, co-founder of Gojo & Company, Inc, joined the microfinance industry in 2003 and has international experience in MFI industry. Mr Taejun Shin is a Founder, Representative Director & CEO of Gojo & Company, Inc. SML continues to benefit from the expertise of their directors. The established track record of promoters in microfinance lending has supported SML’s growth strategy. The company’s Asset Under Management (AUM) has grown significantly to Rs. 2,883.99 Cr. as on March 31, 2022 from Rs.1,476.16 Cr. as on March 31, 2021.Further it grew to Rs. 3,254.41Cr. as on September 30, 2022(Provisional). The off-book portfolio stood at ~Rs. 771.44 Cr. as on September 30, 2022(Provisional), vis. a. vis ~Rs.590.1 Cr. as on March 31, 2022. SML has off- book exposure in the form of business correspondence relationships with Ananya Finance for Inclusive Growth Private Limited and DA transactions with 7 institutions.
Acuité believes that SML’s business profile will continue to benefit from the established presence in microfinance lending backed by strong promoter support.
 

• Healthy capital raising ability with diversified funding mix

SML’s net-worth increased to Rs. 639.76 Cr. as on September 30, 2022(Provisional)from Rs. 552.27 Cr. As on March 31, 2022.The company reported a capital adequacy ratio (CAR) of 22.95 percent comprising Tier 1 capital at 19.51 percent and Tier II capital at 3.44percent (as per Ind AS) as on March 31, 2022. Further the CAR improved to 24.16 percent as on September 30, 2022. The company’s leverage increased to 4.13 times as on March 31, 2022, from 2.79 times as on March 31, 2021 (4.09 times as on September 30, 2022). The company has a strong lender profile comprising Banks and Financial Institutions, with total debt increasing to ~Rs. 2314 Cr. outstanding as on June 30, 2022, as compared to Rs. 1,127.08 Cr. outstanding as on March 31, 2021. SML’s borrowing profile comprised Term loans, NCD’s and subordinated debt from IDFC Capital, UC Inclusive Credit private Limited, Northern Arc Capital as on March 31, 2022. The ability to raise debt for microfinance activities remains challenging due to a very selective and cautious approach adopted by Banks and NBFC/FIs. However, SML has demonstrated access to funding from both banks and large NBFC/FIs. SML raised ~Rs.1,131 Cr. from various lenders in FY2021. With improved capitalization levels SML was further able to raise funds in the form of terms loans. NCD’s and securitizations of around ~Rs. 2,374 Cr. in FY2022.
Acuité believes that the company’s comfortable capitalization levels along with demonstrated resource raising ability will support its growth plans over the medium term.
 

• ­Deterioration in Asset quality

SML mainly operates in rural and semi-urban centres with agriculture and allied activities accounting for around 80 percent of their loan portfolio as on May 31, 2022. Acuité notes the inherent risks in nature of the microfinance business accentuated by the economic impact of COVID-19, rendering the portfolio vulnerable to asset quality risks. Against this backdrop, weakening in asset quality is seen with increase in Gross Non-Performing Assets (GNPA) levels (on-book) at 5.59 percent and Net Non-Performing Asset (NNPA) at 4.34 percent as on September 30, 2022 as compared to GNPA & NNPA of 3.33 percent and 2.53 percent as on March 31, 2022. SML has also restructured its loan book which had an outstanding balance at Rs. 127.16 Cr. as on September 30, 2022. Around 83 percent of this restructured book is classified in 90+ dpd bucket for the same period. SML continued to maintain low provision coverage which stood at ~22.36 percent as on September 30, 2022. SML also made write-offs in its loan portfolio amounting to Rs. 12.88 Cr. during H1 FY2023.
Acuité believes that SML’s ability to demonstrate growth in loan assets while containing asset quality risks will be crucial to the credit profile of the company.
 

• Moderate profitability parameters

The company’s Asset under Management (AUM) has increased to Rs. 2,883.99 Cr as on March 31, 2022 from Rs. 1,476.16 Cr as on March 31, 2021. Further the AUM grew to Rs. 3254.41 Cr as on September 30, 2022.  The company saw an increase in its Net interest income to Rs. 369.98 Cr for FY2022 from Rs. 255.30 Cr for FY2021. The company has reported a PAT of Rs 13.77 Cr during H1FY23. The profitability metrics stood moderate marked by NIM at 8.59 percent for FY2022 as against 10.59 percent for FY2021 (as per Acuité’s calculation). RoTA (Return on Total Assets) and RoAA (Return on Average Assets) also stood moderate at 1.13 percent and 1.46 percent for FY2022 as against 0.65 percent and 0.76 percent for FY2021, respectively.
Acuité believes that going forward ability of the company to grow its loan portfolio while improving its profitability will be key monitorable
 

• Susceptibility to risks inherent to microfinance segment

SML 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 SML 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 additional slippages while maintaining the growth in the loan portfolio will be crucial.