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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 100.00 | ACUITE A- | Stable | Assigned | - |
| Bank Loan Ratings | 500.00 | ACUITE A- | Stable | Reaffirmed | - |
| Non Convertible Debentures (NCD) | 120.00 | ACUITE A- | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 720.00 | - | - |
| Rating Rationale |
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Acuité has assigned the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) to the Rs. 100.00 Cr. bank facilities (including proposed facilities) of Shri Ram Finance Corporation Private Limited (SRFCPL). The outlook is ‘Stable’.
Acuité has reaffirmed the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) to the Rs. 500.00 Cr. bank facilities (including proposed facilities) of Shri Ram Finance Corporation Private Limited (SRFCPL). The outlook is ‘Stable’. Acuité has reaffirmed the long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) to the Rs. 120.00 Cr. Non- Convertible Debentures (including proposed facilities) of Shri Ram Finance Corporation Private Limited (SRFCPL). The outlook is ‘Stable’. Rating Rationale The rating reaffirmation continues to take into account the adequate capital structure, healthy resources raising ability and multiple infusions from the promoter since February 2021 amounting to ~Rs. 41 Cr. as on June 30, 2023. The rating also continues to factor in the company’s demonstrated track record of operations in vehicle financing segment, experienced management and healthy profitability metrics. The gearing levels stood at 3.38 times as on FY23 (provisional) as against 2.99 times as on FY22. Further, the company's AUM has shown a healthy growth of 53 percent YoY to Rs. 835 Cr. as on FY23. The ratings are, however, constrained by moderate asset quality as marked by GNPA of 2.77 percent as on March 31, 2023 (P.Y: 2.95 percent). Further, the ratings remains constrained by geographical concentration risk with ~37 percent and ~40 percent of the lending portfolio concentrated in Chhattisgarh and Madhya Pradesh respectively. Going forward, the timeliness of raising equity, growth in AUM while maintaining asset quality and operating metrics will be key monitorable. |
| About the company |
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Raipur (Chhattisgarh) based, SRFCPL was incorporated in 2004 as a Non-Deposit-taking NonBanking Financial Company (ND-NBFC). Subsequently, it started lending business in 2008 upon receiving NBFC license. SRFCPL is engaged in extending two and four wheeler financing, secured and unsecured loans towards SME borrowers, unsecured microloans to individuals and personal loans to government employees. The company is promoted by Mr. Ganesh Bhattar and his son Mr. Gaurav Bhattar, who have over a decade of experience in two-wheeler financing. The company primarily operates in seven states namely Chhattisgarh, Madhya Pradesh, Odisha, Jharkhand, Maharashtra, Rajasthan and Andhra Pradesh through a network of 171 branches as on March 31, 2023.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of SRFCPL to arrive at the rating.
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Key Rating Drivers
| Strength |
| Established track record of lending in vehicle financing through a wide branch network and collection points
SRFCPL commenced lending activities in 2008 upon receiving its NBFC license. The company started the lending business with two-wheeler financing only and gradually since 2010 has diversified its product mix to four wheeler financing, financing LAP towards SME borrowers and microfinance lending. The company is promoted by Mr. Ganesh Bhattar and his son Mr. Gaurav Bhattar (MD & CEO) who have been engaged in two-wheeler financing since 2004 through a proprietorship concern. The promoters are supported by professionals with significant experience in various functional areas. With the support of able management, SRFCPL has associated with ~600 dealers and intermediaries for supporting their forays in two-wheeler segment. The extensive experience of the promoters has helped the company to sustain the business growth during economic downturn. The company’s operations are currently spread across seven states namely Chhattisgarh, Odisha, Madhya Pradesh, Jharkhand and have recently expanded to Maharashtra, Rajasthan and Andhra Pradesh and operate through a network of 171 branches as on March 31, 2023. SRFCPL has a major presence in Chhattisgarh and Madhya Pradesh with ~77 percent of the AUM as on March 31, 2023 spread across various districts in these two states. Acuité believes that SRFCPL’s business profile will continue to benefit from the established presence in the area of operations backed by a wide network of branches. Adequate capital position SRFCPL’s net worth stood at Rs. 196.87 Cr. as on March 31, 2023 (provisional) as against Rs. 142.67 Cr. as on March 31, 2022. The increase in networth is attributable to regular capital infusions from the promoter group as well as internal accruals. The company’s leverage indicators stood at 3.38 times as on March 31, 2023 (provisional) as against 2.99 times as on March 31, 2022. SRFCPL reported a adequate capital adequacy ratio (CAR) of 24.41 percent, comprising Tier 1 capital at 22.26 percent and Tier II capital at 2.15 percent as on March 31, 2023 (provisional). Further, the company has demonstrated resource raising ability from both banks and large NBFC/FIs, with total debt of Rs. 670.83 Cr. outstanding as on March 31, 2023 (provisional). Further, SRFCPL has engaged into co-lending arrangements with SBI which will fuel portfolio growth. Acuité believes that the infusion of debt and equity capital will together stimulate the business growth and in turn improve the financial risk profile of the company. Improving business volumes & healthy profitability metrics The rating draws strength from persistent improvements in disbursements, SRFCPL has disbursed Rs. 642.92 Cr. for FY23 as against Rs. 381.49 Cr. for FY2022 and registered an AUM of Rs. 835.02 Cr. as on March 31, 2023. Further, SRFCPL’s profitability indicators are healthy marked by growth in Net Interest Income from Rs. 76.66 Cr. for FY2022 to Rs. 115.57 Cr. for FY2023 (provisional). The Net Interest Margin (NIM) remained healthy at 17.06 percent as on March 31, 2023 (provisional). The PAT for FY2023 (provisional) stood at Rs. 35.02 Cr. (P.Y: Rs. 19.94 Cr.) with a RoAA of 4.75 percent. The experience of the top management and their active focus on maintaining robust collections has supported the company’s financial and operating performance. Acuite believes that the company will be able to sustain its profitability and asset quality metrics on the back of its ability to raise and deploy funds at competitive spreads across various asset classes. |
| Weakness |
| Moderate asset quality and geographic concentration
SRFCPL’s product mix comprises of two-wheelers financing, secured and unsecured loans towards MSME borrowers, four wheeler financing, micro-lending and personal loans towards government employees. Based on AUM of Rs. 835.02 Cr. (as on March 31, 2023), two-wheeler & four-wheeler loans comprised ~52 percent of AUM, followed by secured and unsecured loans towards MSME borrowers of ~38 percent , personal loans towards government employees comprising ~9 percent and a small contribution is made by microlending. Gradually, the share of loans extended towards MSME borrowers is increasing. SRFCPL’s overall borrower profile typically has dual income profile in terms of salary and agriculture income; these borrowers belong to mid to low-income segment in rural areas. SRFCPL’s overall GNPA and NNPA levels stood at 2.77 percent and 2.30 percent as on March 31, 2023 respectively (2.95 percent and 2.45 percent as on March 31, 2023). The provision coverage as on March 31, 2023 stood at 17 percent. SRFCPL operates in 7 states namely Chhattisgarh, Madhya Pradesh, Odisha, Jharkhand, Maharashtra, Rajasthan and Andhra Pradesh. Of the total AUM, Chhattisgarh accounts 37 percent, followed by Madhya Pradesh around 40 percent. However, the company has started expanding into newer regions with a view to ameliorate the concentration risk. Acuité believes that containing additional slippages while maintaining the growth in the loan portfolio and ability of expanding operations in others states will be key rating monitorables. |
| ESG Factors Relevant for Rating |
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SRFCPL belongs to the NBFC sector which continues to complement the efforts of banks in enhancing small ticket retail lending in India. Some of the material governance issues for the financial services sector are policies and practices with regard to business ethics, board diversity and independence, compensation structure for board and KMPs, role of the audit committee and shareholders’ rights. On the social aspect, some of the critical issues for the sector are the contributions to financial inclusion and community development, responsible financing including environmentally friendly projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks. The entity has made adequate disclosures regarding its policies on related party transactions, vigil mechanism and whistle blowing. The board of directors consist of 3 directors. The company also maintains adequate level of transparency with regards to business ethics issues like related party transactions. In terms of its social impact, SRFCPL is actively engaged in community development programmes through its CSR activities.
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| Rating Sensitivity |
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| Material Covenants |
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SRFCPL is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality among others.
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| Liquidity Position |
| Adequate |
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SRFCPL’s liquidity profile is adequate with no cumulative mismatches in individual buckets up in near to medium term based on the ALM statement as on March 31, 2023. Further, the company had liquidity buffers of Rs. 215.49 Cr. as on March 31, 2023 available in the form of cash and cash equivalents, cash credit adhoc facilities as well as unavailed sanctions to support its liquidity.
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| Outlook: Stable |
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Acuité believes that SRFCPL will maintain a ‘Stable’ outlook over the near to medium owing to the established track record of promoters and their demonstrated ability to sustain the business growth. The outlook may be revised to ‘Positive’ in case of higher than envisaged growth in loan portfolio while maintaining profitability and asset quality metrics. Conversely, the outlook may be revised to ‘Negative’ in case of any deterioration in asset quality, profitability metrics and capital structure.
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| Other Factors affecting Rating |
| Not applicable |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
*Total income equals to Net Interest Income plus other income.
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| Status of non-cooperation with previous CRA (if applicable): |
| Not applicable |
| 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 • 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 |
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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. Acuité’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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