Press Release October 10, 2024 VELICHAM FINANCE PRIVATE LIMITED - PROCYON 06 2024 Rating Assigned

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Pass Through Certificates (PTCs)	6.66	ACUITE BBB | SO | Assigned	-
Total Outstanding	6.66	-	-
Total Withdrawn	0.00	-	-

Rating Rationale

­Acuité has assigned the long-term rating of ‘ACUITE BBB (SO)’ (read as ACUITE Triple B (Structured Obligation) to the Pass Through Certificates (PTCs) of Rs. 6.66 Cr.  issued by Procyon 06 2024 (Trust) under a securitisation transaction originated by VELICHAM FINANCE PRIVATE LIMITED (VFPL) (The Originator). The PTCs are backed by a pool of unsecured MSME and secured MSME loans with principal outstanding of Rs. 7.61 Cr. The rating addresses the timely payment of interest and ultimate payment of principal on monthly payment dates in accordance with the transaction documentation. The transaction is structured at par. The rating is based on the strength of cash flows from the selected pool of contracts; the credit enhancement is available in the form of (i) Subordinated Equity tranche with investment by the originator of 10.00 percent of the pool principal; (ii)Cash collateral of 7.50 percent of the pool principal; (iii) Excess Interest Spread of 14.98 percent of the pool principal. (iv) Overcollateral of 2.50 percent of the pool principal The final rating of the PTCs is assigned as the following documents have been received: 1. Trust Deed 2. Deed of Assignment 3. Servicing Agreement 4. Legal Opinion 5. Final Term Sheet 6. Any other documents relevant to the transaction

About the Originator

­­Chennai based Velicham Finance Private Limited (VFPL) is an NBFC engaged in extending loan against property (LAP) towards MSME borrowers and income generation loans. Velicham Finance Private Limited (VFPL) has its genesis with Bharathi Women Development Centre (BWDC), which was established in December 1987 as a Society by Mr. Nagarajan Muthukrishnan, who is the Managing Director of Velicham Finance Private Limited (VFPL). The company operates in Tamil Nadu, Puducherry and Kerala with a network of 28 branches as on March 31, 2024.

Assessment of the Pool

­­VFPL had Assets under management of Rs. 164.63 Cr. as on February 29, 2024. The current pool being securitised comprises 4.62 percent of the total AUM. The underlying pool in the current Pass Through Certificate (PTC) transaction comprises of unsecured and secured MSME loans extended towards 522 borrowers, with an average ticket size of Rs. 1.83 lakhs, minimum ticket size of Rs. 0.75 lakhs and maximum of Rs. 5 lakhs, indicating moderate granularity. The current average outstanding per borrower stands at Rs. 1.46 lakhs. The weighted average original tenure for the pool is 25.65 months. The pool has weighted average seasoning of 6.42 months (minimum 5 months seasoning and maximum of 9 months seasoning). Hence, the pool is moderately seasoned. All the loans under the pool are current as on pool cut-off date. The pool’s geographical concentration is high. 100.00 percent of the borrowers are concentrated in Tamil Nadu. The top 10 borrowers of pool constitute 5.52 percent of the pool principal o/s.

Credit Enhancements (CE)

­­The rating is based on the strength of cash flows from the selected pool of contracts; the credit enhancement is available in the form of (i) Subordinated equity tranche with investment by the originator of 10.00 percent of the pool principal; (ii)Cash collateral of 7.50 percent of the pool principal; and (iii) Excess Interest Spread of 14.98 percent of the pool principal. (iv) Overcollateral of 2.50 percent of the pool principal

Transaction Structure

­­The transaction has a par structure, wherein the loan pool is to be assigned to the trust for a purchase consideration equal to 87.50% of the principal outstanding (POS) consisting of Series A1 PTCs and Subrodinated Equity Tranche of 10.00%. The rating of Series A1 PTCs addresses the timely payment of interest on each payout date and the ultimate payment of principal to the Series A1 PTCs investors on the scheduled payout date in accordance with the transaction documentation.

Brief Methodology

­­Parameters considered are seasoning of the pool, pool vs portfolio, portfolio cuts, amortisation of the pool, internal cash flow modeling, pool characteristics, static pool, dynamic DPDs to assign the rating.

Legal Assessment

­The final rating is assigned based on the adherence to the structure, terms and covenants detailed in the executed trust deed, servicing agreement, legal opinion, assignment agreement, final term sheet and other documents relevant to the transaction.

Key Risks

Counter Party Risks

­­The pool has average ticket size of Rs. 1.83 lakhs, minimum ticket size of Rs. 0.75 lakhs and maximum of Rs. 5 lakhs. Considering the vulnerable credit profile of the borrowers, the risk of delinquencies/defaults are elevated. These risks of delinquencies are partly mitigated, considering the efficacy of the originator’s origination and monitoring procedures.

Concentration Risks

­­The pool is concentrated, i.e. 77.06 percent of underlying assets in the pool are in nature of unsecured MSME loans extended towards 522 individual borrowers, hence the geographic concentration risk exists. However top 10 borrowers constitutes 5.52 percent of the pool principal O/s

Servicing Risks

­­Since this is one of the few initial PTC transactions for the originator. Also, the vintage of the originator in this portfolio is low. Therefore, the servicing risk for the transaction remains high.

Regulatory Risks

­­In the event of a regulatory stipulation impacting the bankruptcy remoteness of the structure, the payouts to the PTC holders may be impacted.

Prepayment Risks

­­The pool is subject to prepayment risks since rate of interest is significantly high and borrowers may be inclined to shift to low cost options (based on availability). Further, the asset class being housing loans, the risk of prepayment remains high. 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

Rating Sensitivity

­ Collection performance of the underlying pool Credit quality of the originator Decrease in cover available for PTC payouts from the credit enhancement

All Covenants (Applicable only for CE & SO Ratings)

­­The facilities comprisingthe pool shall be identified on the basis of the followingcriteria: No facility comprising the pool is classified as a "non-performing asset" for the purposes of the directions and guidelines of the RBI. Loans should not have been restructured or rescheduled; Compliance with "know your customer" norms specified by the RBI The pool should comply with the Minimum Holding Period requirements prescribed under the Securitisation Directions. No facility comprisingthe pool is overdue as on the Pool Cut Off Date.

All Assumptions

­­Acuité has arrived at a base case delinquency estimate basis its analysis of the company's historical delinquencies and further applied appropriate stress factors to the base loss figures to arrive at the final loss estimates. The loss estimate also consider the risk profile of the particular asset class, the borrower strata, economic risks, collection efficiency over the past several months as well as the credit quality of the originator. Acuité also has simulated the potential losses to an extent by applying sensitivity analysis.

Liquidity Position

Adequate

­­The liquidity position in the transaction is adequate. The cash collateral available in the transaction amounts to 7.50 percent of the pool principal. The PTC payouts will also be supported by an internal credit enhancement in the form of subordinated equity tranche (10.00 percent of pool principal), over collateral (2.50 percent of pool principal and excess interest spread (14.98 percent of pool principal)

Outlook

­Not Applicable

Key Financials - Originator

­ Particulars Unit FY24 (Actual) FY23 (Actual) Total Assets Rs. Cr. 126.16 67.95 Total Income* Rs. Cr. 20.79 10.83 PAT Rs. Cr. 6.20 2.47 Networth Rs. Cr. 24.09 13.80 R e t u r n        on         A v e r a g e    Assets (RoAA) (%) 6.39 4.79 Return on Net Worth (RoNW) (%) 32.73 21.56 T  o  t   a  l     Debt/Tangible Net      Worth (Gearing) Times 3.99 3.77 Gross NPA’s (%) 0.40 0.11 Net NPA’s (%) 0.30 0.05 * Total income equals to Net interest income plus other income

Any Other Information

­None

Status of disclosure of all relevant information about the Obligation being Rated

Non-public information

­

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.

Applicable Criteria

• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.htm • Securitized Transactions: https://www.acuite.in/view-rating-criteria-48.htm

Rating History :

­Not Applicable

Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating Not Applicable Not avl. / Not appl. Pass Through Certificate Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 6.66 Highly Complex ACUITE BBB | SO | Assigned

Contacts

Mohit Jain Senior Vice President - Rating Operations Nattasha Venkatesh Associate Analyst - Rating Operations	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating.