|
|
| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 77.70 | ACUITE BBB | Stable | Upgraded | - |
| Non Convertible Debentures (NCD) | 42.30 | Not Applicable | Withdrawn | - |
| Total Outstanding | 77.70 | - | - |
| Total Withdrawn | 42.30 | - | - |
|
Rating Rationale |
|
Acuité has upgraded the long-term rating to ’ACUITE BBB’ (read as ACUITE triple B) from ’ACUITE BBB-’ (read as ACUITE triple B minus) on Rs 77.70 crore Non-Convertible Debentures facilities of Varthana Finance Private Limited (VFPL). The outlook is ‘Stable’.
Acuité has withdrawn the long-term rating on Rs. 8 Cr. Non-Convertible Debentures facilities of Varthana Finance Private Limited (VFPL) without assigning any rating as the instrument is fully repaid. The rating is being withdrawn on account of request received from the company and NOC (No Objection Certificate) received from the trustee. Acuité has withdrawn the long-term rating on the Rs. 34.30 Cr. Non-Convertible Debentures facilities of Varthana Finance Private Limited (VFPL) without assigning any rating as it is a proposed facility. The rating is being withdrawn on account of request received from the company. The rating withdrawal is in accordance with Acuité's policy on withdrawal of rating as applicable to the respective facility / instrument. Rationale for the Rating The rating upgrade is on account of improvement in asset quality and adequate capitalisation level of Varthana Finance Private Ltd. The Asset quality improved as it continues to recover from the Covid-19 pandemic-related stress. The GNPA improved to 2.9 percent in H1FY25 as compared to 3.03 percent as on March 31,2024 (8.35 percent as on March 31,2023).The company has adequate capitalisation level marked by CAR of 31 percent in H1FY25 (40.70 percent in FY24 and 57.06 percent in FY23). The increase in Networth from Rs 402.61 Cr. in FY23 to Rs 537.50 Cr. in FY24 is due to equity infusion of Rs 105 crore in June 21 as C1 CCPS Series. In February 2024, Varthana took over the entire portfolio of Indian School Finance Company Private Limited (ISFC), which included loans amounting to Rs 126 crore and Security Receipts worth Rs 34.73 crore. While Varthana continues to focus on school loans, it has also grown its student loan segment. The rating continues to factor the experience of the management in school financing segment, along with comfortable capital base aided by capital infusion from a mix of new and existing institutional investors. These strengths are partially offset by product concentration risk and limited operational history. Going forward, the ability of the company to contain asset quality pressures while scaling up the portfolio along with improving the profitability will remain a key rating monitorable.
|
| About the Company |
|
Based in Bangalore, Varthana Finance Private Limited is a non-deposit taking non-banking financial company incorporated in 1984. It commenced financing operations in 2013 post acquisition of the company by the current promoters, Mr. Steve Hardgrave and Mr. Brajesh Mishra. VFPL extends credit mainly through secured and unsecured loans to private schools for expansion purposes. The company has 41 branches with presence across 15+ states and Assets Under Management (AUM) of Rs. 1498.3 Cr. as on March 31 2024.
|
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered the standalone financial and business risk profile of VFPL to arrive at the rating. |
| Key Rating Drivers |
| Strength |
| Experienced management
VFPL has an experienced management team led by Mr. Steve Hardgrave, CEO and Executive Director, Mr. Brajesh Mishra, COO and Executive Director who have relevant experience in the business segment of school financing. Mr. Hardgrave had worked in early stage venture funds which target social purpose businesses. Mr. Mishra has close to two decades of experience in retail banking, rural, and agri-lending and automotive finance at ICICI Bank. In addition, the company is backed by institutional investors such as ChrysCapital, Elevar Equity, LightRock, Kaizen PE among others. Acuité believes that VFPL’s business profile will be supported by its experienced promoters and investors and will be able to leverage their expertise to raise funding and grow its loan book. Comfortable capitalization VFPL has an overall CAR of 40.70 percent as on March 31,2024 and gearing of 1.96 times (57.06 percent along with comfortable gearing of 1.47 times as on March 31, 2023 which provides adequate headroom for company to pursue future growth plans. The networth of the company stood at Rs.537.50 Cr. as on March 31,2024. (Rs 542 Cr. in September 30,2024) Going ahead, Acuité expects VFPL to benefit from its continuous support from external investors, hereby maintaining adequate capitalisation |
| Weakness |
| Moderate asset quality;albeit improving
VFPL’s on time portfolio stood at 88.7 percent in September 30,2024 as against 87.2 percent as on March 31, 2024. Subsequently, the GNPA improved to 2.90 percent as on September 30,2024 as against 3.03 percent as on March 31, 2024. Going forward, the ability of the company to improve the asset quality while limiting additional slippages would be a key monitorable. Subdued profitability The company reported a PAT of Rs 5.80 Cr. in H1FY25 as against a PAT of Rs .30.89 Cr in FY24. The improvement in PAT in FY24 is on the back of recovery from bad debts and proceeds from ARC deal of Rs 80 Cr. The profitability remains susceptible to the additional credit costs pertaining to the slippages in the outstanding restructured portfolio. Acuite believes that the company's ability to contain asset quality pressures while improving its profitability parameters will be a key rating monitorable. |
| ESG Factors Relevant for Rating |
|
VFPL belongs to the NBFC sector which complements bank 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 social development, responsible financing including environmentally friendly projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks. VFPL offers financial services for private schools for expansion purposes. The company has a well-placed grievance redressal mechanism; it has made adequate disclosures with respect to related party transactions. It also adheres to Reserve Bank of India’s Fair Practices Code and has the necessary interest rate and grievance redressal policies. The company’s board comprises of three independent directors out of total nine directors. VFPL supports community development through CSR projects mainly aimed at promotion of education, eradication of hunger, environmental sustainability, promoting gender equality and empowering women among other causes.
|
| Rating Sensitivity |
|
| Liquidity Position |
| Adequate |
|
VFPL has adequately matched asset-liability profile as on September 30, 2024 with no negative cumulative mismatch in near to medium term. The company has maintained cash and bank balances of Rs 108.38 Cr. and Rs 67.22 Cr. of unencumbered Mutual fund investments as on September 30,2024 with total liquidity of Rs, 175.6 Cr. as on September 30,2024.
|
| Outlook:Stable |
| |
| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
| Status of non-cooperation with previous CRA (if applicable): |
| Not Applicable |
| Any other information |
| None |
| Applicable Criteria |
|
• 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 |
|
| |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Contacts |
About Acuité Ratings & Research |
