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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 120.00 | ACUITE BBB- | Stable | Reaffirmed | - |
| Total Outstanding | 120.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE BBB-’ (read as ACUITE triple B minus) to the Rs. 120.00 crore Non-Convertible Debentures facilities of Varthana Finance Private Limited (VFPL). The outlook is ‘Stable’.
Rationale for the Rating The rating considers 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. The capital adequacy ratio as on December 31,2023 stood at 39.28 percent with gearing levels of 1.66 times as on December 31,2023. These strengths are partially offset by the elevated asset quality stress in the portfolio due to the COVID-19 pandemic. The GNPA as on December 31,2023 improved to 6.88 percent from 8.35 percent as on March 31, 2023. The company restructured the loans of ~20 percent of its portfolio as a part of COVID-19 restructuring which as on December 31,2023 stood at 6.23 percent. Further, VFPL's profitability stood at Rs 14.09 Cr. for December 31,2023 as against profits of Rs. 5.4 Cr. in FY23 . 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 |
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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 38 branches with presence across 15+ states and Assets Under Management (AUM) of Rs. 1115.9 Cr. as on December 31,2023.
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| 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 39.28 percent as on December 31,2023 along with comfortable gearing of 1.66 times as on December 31, 2023 which provides adequate headroom for company to pursue future growth plans. The networth of the company stood at Rs.417.5 Cr. as on December 31,2023. Going ahead, Acuité expects VFPL to benefit from its continuous support from external investors, hereby maintaining adequate capitalisation |
| Weakness |
| Stressed asset quality
VFPL’s on time portfolio in December 31,2023 stood at 75.8 percent from 73.2 percent as on March 31, 2022. Subsequently, the GNPA improved to 6.88 percent as on December 31,2023 as against 8.35 percent as on March 31, 2023. The company had restructured loans of ~20 percent of its portfolio as a part of COVID-19 restructuring. The restructured book as a percentage of AUM stood at 6.23 percent as on December 31,2023(10.24 percent as on March 31, 2023). Further, the recoverability of dues from the stressed accounts is envisaged to be time consuming due to the nature of the collateral. The collection efficiency for current month due stood in a range of 73-75 percent for six months ended December 31, 2023. 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’s profitability stood at Rs 14.09 Cr during the nine months of fiscal 2024. 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 |
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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.
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| Rating Sensitivity |
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| Liquidity Position |
| Adequate |
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VFPL has adequately matched asset-liability profile as on December 31, 2023 with no negative cumulative mismatch in near to medium term. The company has maintained cash and bank balances of Rs 18.39 Cr as on December 31,2023.
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| Outlook: Stable |
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Acuité believes that VFPL will maintain ‘Stable’ outlook over the near to medium term owing to the experience of the management and backing of investors. The outlook may be revised to ‘Positive’ in case VFPL demonstrates significant and sustainable growth in its scale of operations while mitigating asset quality risks in portfolio. Conversely, the outlook may be revised to ‘Negative’ in case of any challenges faced in scaling up operations, resource raising ability and in case of any sharp deterioration in asset quality and profitability levels.
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| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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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. 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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