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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Pass Through Certificates (PTCs) | 13.62 | ACUITE AA- | SO | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 13.62 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long term rating ‘ACUITE AA-(SO)’ (read as ACUITE double A minus (Structured Obligation)) to the Pass Through Certificates (PTCs) of Rs. 13.62 Cr issued by Avenger 2022 – March Series (The Trust) under a securitisation transaction originated by Ugro Capital Limited (Ugro) (The Originator). The PTCs are backed by a pool of machinery loans.
The rating factors in the timely payment of interest on monthly payment dates and ultimate payment of principal in accordance with transaction documentation. The transaction is structured at par.
The rating is based on the strength of cash flows from the selected pool of contracts and the credit enhancement available in the form of
i. Cash collateral of Rs 1.99 Cr.
ii. Over-collateralisation. iii. Excess Interest Spread (EIS). The total amount of over-collateralisation and EIS is Rs 0.98 Cr. |
| About the Originator |
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UGRO was originally incorporated as Chokhani Securities Limited in 1993. It is a systemically important non-deposit taking non-banking financial company (NBFC) registered with the Reserve Bank of India (RBI). In 2018, pursuant to a change in control and management, the company was renamed as UGRO Capital Limited. UGRO's equity shares, commercial paper and non-convertible debentures are listed on the Bombay Stock Exchange (BSE). The company's equity is also listed on the National Stock Exchange (NSE). UGRO is headed by Mr. Shachindra Nath, a seasoned finance professional, with more than two decades of experience in the financial services sector. He is the Promoter, Executive Vice Chairman and Managing Director of the company. UGRO is a Mumbai based company (registered office). It has more than 95 branches across the country as on September 30, 2022. UGRO lends to the MSME segment in nine specifically identified sectors i.e. Healthcare, Education, Chemicals, Food Processing/FMCG, Hospitality, Electrical Equipment’s and Components, Auto Components, Light Engineering and Micro-Enterprise segment. UGRO has built diversified distribution channels which consist of Branch led channel, Ecosystem consisting of Supply Chain & Machinery Finance, Partnership & Alliances for Co-lending with smaller NBFCs & FinTechs & Digital Channel.
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| Assessment of the pool |
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As per the initial rating, the underlying pool in the current Pass Through Certificate (PTC) transaction consists of machinery loans extended towards 48 individual borrowers, with an average ticket size of Rs. 49.50 lakhs. The current average outstanding per borrower stands at Rs. 24.26 lakhs. The weighted average original tenure for pool is of 57.38 months (minimum 37 months & maximum 62 months). The pool has a healthy weighted average seasoning of 12.73 months (minimum 11 months seasoning and maximum of 18 months seasoning). 99.4% of the loans in the pool did not avail the moratorium that was available during the pandemic period and none of the loans in the pool went into the non-current bucket since origination, which reflect its healthy asset quality. The underlying machinery for the loans include Computer Numerical Controls (47%), Laser cutting (24%), Vertical Machining Centre (7%), etc. While 41.2% of the customers are companies, the remaining 32.6% are corporate firms and the rest are individuals/ proprietorship. 28.11% of these borrowers are concentrated in Maharashtra followed by 16.71% in Haryana, and the remaining belong to other states. The top 5 borrowers of pool constitute 35.7% (i.e. Rs.6.14 Cr) of the pool principal O/s. Currently, there are 46 borrowers outstanding, and none of the loans in the pool are in the 90+dpd bucket. Also, there has been no utilisation of credit enhancement in the transaction, thus signalling healthy repayment in the transaction. Since the initial rating, this transaction has witnessed moderate CE built up of 13.69%. Also, the pool has amortised by 26.95%. |
| Credit Enhancements (CE) |
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The rating is based on the strength of cash flows from the selected pool of contracts and the credit enhancement available in the form of i. Cash collateral of Rs 1.99 Cr. ii. Over-collateralisation. iii. Excess Interest Spread (EIS). The total amount of over-collateralisation and EIS is Rs 0.98 Cr. |
| Transaction Structure |
| The rating factors in the timely payment of interest on monthly payment dates and ultimate payment of principal in accordance with transaction documentation. The transaction is structured at par. |
| Assessment of Adequacy of Credit Enhancement |
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Acuité has arrived at a base case delinquency estimate of 1.0% – 2.0% in respect of the loan assets being securitised. Acuite has further applied appropriate stress factors to the base loss figures to arrive at the final loss estimates and consequently the extent of credit enhancement required. The final loss estimates also consider the intrinsic risk of the particular asset class, the borrower strata, economic risks and the demonstrated collection efficiency over the past few months. Acuité has also considered the track record of operations of the originator and certain pool parameters while arriving at the final loss estimate.
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| Legal Assessment |
| The final rating is assigned based on the fulfilment of the structure, terms and covenants detailed in the executed trust deed, servicing agreement, legal opinion, accounts agreement, assignment agreement and other documents relevant to the transaction. |
Key Risks
| Counterparty Risks |
| The loans are machinery loans with an average ticket size of Rs. 49.50 lakhs. Considering the Acuité Ratings & Research Limited www.acuite.in moderately vulnerable credit profile of the borrowers, the risk of delinquencies/defaults are moderate. These risks of delinquencies are partly mitigated, considering the efficacy of the originator’s underwriting processes, coupled with the systems and process put in place for post disbursement monitoring. |
| Concentration Risks |
| Since the pool consists of 48 borrowers, moderate concentration risks remain. However, the significant amortisation of the pool and the track record so far of the borrowers mitigate this risk to some extent. |
| Servicing Risk |
| There is limited track record of servicing machinery loans PTCs, since this is the second machinery loans PTC transaction for the originator with Acuité. |
| Regulatory Risk |
| In the event of a regulatory stipulation impacting the bankruptcy remoteness of the structure, the payouts to the PTC holders may be impacted. |
| Prepayment Risk |
| The pool is subject to prepayment risks since rate of interest is relatively high and borrowers may be inclined to shift to low cost options (based on availability). In case of significant prepayments, the PTC holders will be exposed to interest rate risks, since the cash flows from prepayment will have to be deployed at lower interest rates. |
| Commingling Risk |
| The transaction is subject to commingling risk since there is a time gap between last collection date and transfer to payout account. |
| Outlook - Not Applicable |
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| Key Rating sensitivity |
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| Material Covenants |
| The following covenant is included in the transaction structure: The collection in month M will be deposited into the Collection and Pay-out Account (CPA) in the month (M+1). |
| Liquidity Position |
| Adequate |
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The liquidity in the transaction is adequate. The credit enhancement is available in the form of i. Cash collateral of Rs 1.99 Cr. ii. Over-collateralisation. iii. Excess Interest Spread (EIS). The total amount of over-collateralisation and EIS is Rs 0.98 Cr. |
| Key Financials - Originator | ||||||||||||||||||||||||||||||||||||||||
**As per Acuité calculations; RoAA based on On balance sheet portfolio Status of Non Cooperation with Other CRA None |
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| Any other information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria53.htm |
| Note on complexity levels of the rated instrument |
| 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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