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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 200.00 | ACUITE A- | Negative | Reaffirmed | Stable to Negative | - |
| Total Outstanding | 200.00 | - | - |
| Total Withdrawn | 0.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed its long-term rating of ‘ACUITE A-’ (read as ACUITE A minus) on the Rs. 200.00 crore bank loan facilities of Western Capital Advisors Private Limited (WCAPL). The outlook is revised from ‘Stable’ to 'Negative'. Rationale for the rating The negative rating outlook factors in the company’s significant decline in the AUM led by the closure of disbursements towards supply chain finance and small ticket sized business loans. The AUM of the company recorded a Y-oY decline of 31 percent and stood at Rs. 526 crore as on March 31, 2024 as against Rs. 765.77 crore as on March 31, 2023. Further, profitability has seen a similar decrease due to significant decrease in AUM where PAT in FY24 stood at Rs. 20.53 Cr. and in FY 23 it was Rs. 33.11 Cr. which is a 38% decline Y-oY. Moreover, the profitability metrics as indicated by Return on Average Assets (ROAA) at 2.82 percent for FY24 as against 4.59 percent for FY23 has shown a similar decline as well. The shift in business strategy and vision towards retail loans (Prabhav Loans) has seen operating expenses in setting up this business line affect the firms profitability. However these Weaknesses are partially offset by the experienced management along with the support from resourceful promoters of Kejriwal Group. This support is shown via the adequate capitalisation levels at 51.90 percent with a tangible networth of Rs. 271.68 crore as on March 31, 2024. WCAPL has demonstrated a sound asset quality as reflected by the low Net Non-performing (NNPA) levels of 0.33 percent as on March 31, 2024 as against 0.68 percent as on March 31, 2023. Moreover, the substantial investment into the retail lending division is to yield returns as soon as the current financial year and therefore the performance of this development would be a key monitorable. |
| About the company |
| WCAPL based out of Mumbai was founded in 2019 with a vision to support the financial services ecosystem by providing growth capital to upcoming players. WCAPL started with funding NBFC/Fintech/MFI/SME customers for their growth capital. Later, WCAPL found the opportunity to support the new age companies through partnership model. This will help the partners to utilize their resources in a more effective way. The company offers solutions for SME/MSME funding, supply chain finance, unsecured loans, personal loans & two-wheeler loans among others. |
| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Acuité has considered a standalone approach to the business and financial risk profile of WCAPL to arrive at the rating. |
| Key Rating Drivers |
| Strength |
| Support from Promoter group coupled with experienced management. WCAPL commenced its operations in 2019 and has received continuous support in the form of periodic capital infusion from the promoter group since its inception. WCAPL is promoted by the Kejriwal Group led by Kejriwal family. The Kejriwal group has infused funds amounting to Rs 173.75 crore since inception comprising equity and preference capital. Furthermore, Mr. Anil Kejriwal, founder of WCAPL is able backed by senior management team of WCAPL consisting of experienced professionals who have been in the lending business and have been associated with WCAPL since inception. Acuité believes that the company’s growth prospects will be supported by the promoters experience in the industry along with their demonstrated track record of resource raising ability. Healthy capital structure with stable gearing levels. The company has comfortable capitalization levels to support the near to medium term growth prospects. The capitalization levels of WCAPL majorly comprises Tier I capital, where CRAR stood comfortable at 51.90 percent (Tier I: 50.72 percent) as on March 31, 2024. The same stood at 36.45 percent (Tier I: 35.25 percent) as on March 31, 2023. The company’s capital structure is supported by a net worth of Rs. 271.68 crore as on March 31, 2024 and total debt of Rs. 328.45 Cr. resulting in a gearing of 1.21 times as on March 31, 2024 as against 1.93 times as on March 31, 2023 which provide headroom for near term growth. Going forward, the company intends to leverage itself at around 3 times in the near to medium term. Acuité expects the capital structure to remain healthy with the healthy gearing levels considering the additional borrowings. |
| Weakness |
| Deteriorating profitability and AUM levels. The profitability of the company has deteriorated during FY24 reflected by Return on Average Assets (ROAA) at 2.82 percent for FY24 as against 4.59 percent for FY23. Such deterioration comes at the back of shift in strategy as investment and disbursements are now going towards retail loan financing following a complete closure of its supply chain business. This closure of the supply chain business has affected the AUM and the loan portfolio for FY24 as the supply chain business held around 33% of the total AUM and loan portfolio, which is why we can see that AUM has reduced from Rs. 765.77 Cr. in FY23 to Rs. 526 Cr. in FY24. The operating expenses to earning assets has decreased to 3.35 percent for FY24 as against 4.78 percent in FY23 majorly due to an increase in operating expenses towards Prabhav loans (retail loans) The profit after tax of the company stood at Rs. 20.53 crore for FY24 as against Rs. 33.11 crore for FY23. The Net interest margin improved by 4% to 10.60 percent for FY24 as against 10.24 percent for FY23. Acuitè believes that going forward the ability of the company to grow its loan portfolio while improving its profitability will be key monitorable. Moderate scale of operations. The company commenced with SME/MSME lending and is diversifying into building a granular retail segment. Further, the company has started its operations in 2019 with maximum disbursements made during 9MFY22. Loans offered under SME lending have an average tenure ranging between 3 to 48 months. WCAPL offers loan with ticket size ranging between Rs 2 lakhs to Rs 10 Cr. As on March 31,2024 around 70 percent of the outstanding portfolio has a ticket size less than Rs. 1 crore. Going forward WCAPL would be focusing on granularity of the portfolio by diversifying into other retail asset classes. Given the limited track record of operations their continued growth in the coming years will be a key monitorable. Acuité believes, the ability of the company to mobilize additional funding, profitable portfolio scale-up while maintaining asset quality will be crucial to the credit profile of the company. |
| Rating Sensitivity |
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- Efficient and Effective scale up of its retail lending arm - Movement in asset quality and profitability metrics. - Dilution in promoter shareholding & support. - Movement in cost of borrowings and liquidity buffers - Any adverse impact on disbursements and AUM led by regulatory changes on FLDG arrangements. |
| Liquidity Position |
| Adequate |
| WCAPL’s overall liquidity profile remains adequate with no negative cumulative mismatches in near to medium term as per ALM dated March 31, 2024. The company had cash and cash equivalents of Rs 99.50 crore and fixed deposits (held as security against borrowings) of Rs. 3.39 crore as on March 31, 2024. |
| Outlook: Negative |
| Acuité believes that the outlook of the company would remain ‘Negative’ on account of moderation in the Western Capital Advisors Private Limited’s current financial position as indicated by the drop in AUM and Profitability where AUM in FY24 dropped to Rs. 526 Cr. from Rs. 765.77 Cr. in FY23 and PAT dropping from Rs. 33.11 Cr. in FY23 to Rs. 20.53 Cr. in FY24. The rating may be ‘downgraded’ contingent to the financial health of the WCAPL. Conversely, the outlook may be revised to 'Stable' in case the financial position of the WCAPL improves. |
| 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 |
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None |
| Applicable Criteria |
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• 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 • 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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