Satin Creditcare Network Ltd

Transcription

1 Satin Creditcare Network Ltd March 13, 2018 Ratings Instrument Amount (Rs. crore) Rating 1 Rating Action Commercial Paper (CP) issue 200 (enhanced from 150) CARE A2 (A Two) Reaffirmed Total (Rupees Two Hundred Crore Only) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The rating of Satin Creditcare Network Limited (SCNL) continues to draw comfort from the long-standing experience of the promoters, strong investor base and established track record of operations, diversified resource base, liquidity position and adequate risk management systems of the company. The rating also takes into account substantial equity capital raised to absorb the impact of lower collection efficiency post demonetization and to support its growth plans. The ratings are however constrained by weaker asset quality, notwithstanding some improvement over last few months, as reflected by Portfolio at Risk in 90+ DPD (9.17%) as on December 31, 2017 and consequent pressure on profitability. The ratings are also constrained by high geographical concentration and the inherent risk involved in the microfinance industry including unsecured lending, socio-political intervention risk and regulatory uncertainty. The ability of the company to further improve its collections and thereby restore the asset quality and limit the credit losses, geographically diversify and increase scale of operations, ensure consistent profitability, maintain comfortable capital structure and gearing levels are the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Long track record of the company, strong investor base and experienced promoter and management SCNL has been carrying out individual lending activities since The company entered into microfinance lending in 2008 and has gained reasonable experience in the group lending business emerging as the one of the largest NBFC-MFI in the country in terms of Assets under Management (AUM). SCNL has a thirteen-member Board of Directors comprising of two promoter directors, four directors nominated by investors and seven independent directors. The operations of the company are headed by the promoter, Mr H P Singh, the Chairman and Managing Director of the company who is supported by a management team having rich experience in the financial services and microfinance sector. The promoters held 27.42% stake in the company as on December 31, 2017, The company also has a strong investor base consisting of institutional funds and Foreign Portfolio Investors/PE investors viz. Asian Development Bank, Kora Investments, MV Mauritius Ltd, NMI Fund, SBI FMO Emerging Asia Financial Sector Fund Pte Ltd, Morgan Stanley Mauritius Company Ltd, Morgan Stanley (Investments) Mauritius Ltd. The company has also roped in IndusInd Bank as the strategic partner which has not only infused capital in the form of OCPS of Rs.45 crore but also entered into BC agreement with SCNL. Significant build-up of this relationship will be positive for SCNL s capitalization profile given lower capital requirement in BC activity. Demonstrated ability to raise equity capital There has been improvement in capital structure of SCNL with infusion of equity of nearly Rs.360 crore since demonetization (April-December 2017) including the recent equity capital raising of Rs.115 crore (Rs.100 crore equity share capital from investors, Rs.15 crore share warrant subscription from promoter group entity) besides raising OCPS of Rs.45 crore from IndusInd Bank in December The Capital Adequacy of the company has further improved with CAR and Tier-I CAR being 26.6% and 21.97% as on December 31, The adjusted overall gearing stood at 5.50 times as on December 31, Also, following substantial provisioning created over last few quarters by Satin (total provisions against NPAs of Rs.246 crore up to Dec-17), leading to NNPA to Tangible Net Worth ratio at 17.70% as on December 31, Thus, even if the company needs to provide additional provision of Rs crore to cover the losses on existing 1 CARE Ratings Limited

2 delinquent portfolio (NNPA being Rs.148 cr as on Dec 31, 2017), SCNL should be able to absorb the same comfortably given its quarterly pre-provisioning profit of Rs crore (as exhibited in Q2 and Q3FY18) and current comfortable capitalization. Diversified resource base The major source of external funding for SCNL has been term loan from banks/ financial institutions (FIs). SCNL has association with 77 Banks/FIs as on March 31, The company has also tapped non-convertible debentures (NCDs), External Commercial Borrowings, subordinate debt and preference share capital along with raising short term funds in the form of commercial borrowings. SCNL has also accessed securitization/ assignment route for raising funds. The offbalance sheet portfolio as on March 31, 2017, stood at Rs crore (Rs crore as on March 31, 20. The listing of securities of SCNL on NSE and BSE during FY16, has given the company the access to capital markets. Comfortable liquidity position SCNL has raised loans from banks and FIs aggregating Rs.3,665 crore post demonetization, thereby enabling the company to maintain adequate liquidity position despite the lower collections upon announcement of demonetization of currency. The Asset Liability Management profile of the company remains comfortable with no cumulative mismatches in any buckets as on December 31, 217. Management information and IT systems in place SCNL has established an efficient monitoring structure for overseeing its operations at various levels, including area level, regional level and state level. It has put in place risk management systems, viz, defined credit appraisal, collection and monitoring systems including profile of the clients and outer limit of loan size. Specialized software and user-level restrictions are in place to ensure a speedy access to the information with data security. The company has also implemented new systems wherein the field staff operate through TAB based systems connected to the internet. SCNL has put in place systems for real time monitoring of on-field data such as collections, meeting details, geo tagging of field agents etc. thereby allowing monitoring of the operations by the management across various levels of sales hierarchy on real time basis. It has also resulted in reduction in operational expenses by bringing down the disbursement TATs. Key Rating Weaknesses Deterioration in asset quality post demonetization although some improvement in collection efficiency seen over last few months SCNL had been able to maintain asset quality at comfortable levels over the years with nearly 100% collections. However, upon announcement of demonetization the overall collections of SCNL reduced during November The collections had also been impacted in the states of Uttar Pradesh (34.75% of AUM), Madhya Pradesh (12.65% of AUM), Maharashtra (3.15% of AUM) and Uttarakhand (3.21% of AUM) together constituting 53.76% of the AUM as on December 31, The collections had been particularly impacted in the state of Uttar Pradesh. However, the collections have gradually improved to 91% in UP (Nov 2016-Dec 2017) as against nearly 94% in all the other states combined. The month on month collections have improved resulting in overall cumulative collections improving to 93% for the period November1, December 31, The collection efficiency pertaining to disbursements post demonetization has been around 98% for the period January-December 2017, albeit lower than the collection efficiency seen in pre-demonetization times. SCNL still has a borrower base of 61,000 customers (approx.. exposure of Rs.90 crore) as on December 31, 2017 who have not repaid even a single installment post demonetization, although this has been brought down from nearly 1.67 lac customers as at the end of March As on Dec 31, 2017, PAR>30 days and PAR > 90 days stood at 11.95% (Rs crore) and 9.17% (Rs crore) respectively as against 26.56% (Rs. 960 crore) and 14.45% (Rs crore) respectively as on March 31, Also, NNPA of SCNL has improved from 12.76% as on March 31, 2017 (calculated without RBI dispensation) to 3.67% as on December 31, 2017 owing to significant provisions created in 9MFY18 as well as improvement in collection efficiency. The ability of the company to further improve its collection efficiency and limit the net credit losses would be crucial. Moderation in growth in loan book and earnings post demonetization albeit recovery seen in Q2-Q3FY18 The AUM and total operating income of the company had grown at a CAGR of 78% and 81% over the period FY14-FY16 on account of expansion into new areas, addition of new clients and increase in average disbursement per member. 2 CARE Ratings Limited

3 However, there has been moderation in growth during FY17 (AUM growth of 11% viz. a viz. 56% in FY owing to slowdown in disbursements upon announcement of demonetization of the currency on November 8, However, the disbursements have accelerated since March 2017 and the AUM of SCNL has grown from Rs.3617 crore as on March 31, 2017 to Rs.4307 crore as on December 31, SCNL saw increase in total operating income by 39% to Rs crore during FY17 from Rs crore during FY16. However, PAT declined from Rs crore during FY16 to Rs crore during FY17. This was owing to higher operating expenses and provisioning and reversal of interest income resulting in accrual of net loss of Rs during Q4FY17. SCNL has further reported net loss of Rs crore during Q1FY18, owing to provisioning/write-offs aggregating Rs crore during the period. However, SCNL has reported positive of PAT of Rs crore in Q2FY18 and Rs cr in Q3FY18, resulting in cumulative net loss of Rs cr during 9MFY18. Ability of the company to restore its profitability remains to be seen. High albeit reducing geographical concentration SCNL is exposed to regional concentration risk as the company s operations are largely present in three states, viz, UP, MP and Bihar which together constituted 62.50% of the overall loan portfolio as on Dec 31, 2017, as against 74% as on March 31, The exposure of SCNL in the state of U.P. has reduced to 34.75% as on Dec 31, 2017 (from 40.92% as on March 31, 20 as a result of SCNL s penetration in key states of Madhya Pradesh, Bihar & Punjab and expansion in newer markets like Chhattisgarh, Jharkhand, West Bengal and Gujarat. The company has further entered two new states viz. Assam and Orissa during FY18. The Top State (UP) Concentration/Net Worth stood at 178% as on Dec 31, Industry Risk The microfinance industry continues to be impacted by the inherent risk involved viz. socio-political intervention risk and regulatory uncertainty and risks emanating from unsecured lending. Moderate Prospects Post the AP crisis and regulatory intervention by RBI, the microfinance sector had seen strong growth in loan portfolio on account of improving funding profile, control over operating expenses, improving margins and moderate leverage levels. However, on account of various events post demonetization, collection efficiency of the MFIs has deteriorated. This has impacted the asset quality of the MFIs leading to increase in credit costs. It is expected that the loss on account of this event is likely to be in the range of 5-10% of the total loan portfolio for the sector. The profitability of the MFIs has taken a severe hit in FY18 on account of higher provisioning costs. Overall FY18 is expected to be a challenging year for the sector with growth expected to moderate on the back of demonetization as the MFIs will primarily concentrate on overhaul of entire operations to minimize future losses. The portfolio growth for the sector is expected to be around 25 to 30% y-o-y in FY18 as compared to 50-60% y-o-y growth achieved in the past few years. However given the market potential, the sector is likely to continue its high growth post normalization of situation with MFIs continuing to attract funds and improving operational efficiencies to maintain profitability. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings Criteria for Short-term Instruments CARE s Policy on Default Recognition Rating Methodology for Non-Banking Financial Companies Financial Sector Ratios About the Company SCNL is a leading microfinance company based out of Delhi. The company is registered with Reserve Bank of India (RBI) as a non-deposit accepting, systemically important non-banking financial company (NBFC) and had been granted NBFC-MFI status on November 6, 2013, by RBI. SCNL is also listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Incorporated in 1990, the company was initially engaged in providing loans to individuals including shopkeepers etc. in the urban areas. In 2008, the company started group lending business with joint liability group (JLG) model which 3 CARE Ratings Limited

4 constituted 99% of the portfolio of SCNL as on March 31, In FY17, the company commenced MSME lending. Further, SCNL s Board, has approved the formation of a wholly-owned Housing Finance Company for entry into affordable housing segment. The operations of SCNL are spread across 18 states/ UTs i.e. Uttar Pradesh, Madhya Pradesh, Bihar, Punjab, Delhi/ NCR, Uttarakhand, Rajasthan, Haryana, Chandigarh, Jammu & Kashmir, Maharashtra, Chhattisgarh, Jharkhand, Himachal Pradesh, West Bengal, Gujarat, Orissa and Assam as on December 31, As on December 31, 2017, SCNL was operating in 280 districts managed through 728 branches (Individual & JLG) with Lac active borrowers (Individual & JLG) with total assets under management (AUM) being Rs crore. SCNL also has a subsidiary Taraashana Services Limited ( TSL ) which acts as a business correspondent for 6 Banks/FIs. The company has spread its presence in 8 states (Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Chattisgarh, Bihar, Punjab and UP) with 170 branches Dec 31, TSL reported a turnover of Rs crore and PAT of Rs crore with AUM of Rs.450 crore as on March 31, Brief Financials (Rs. crore) Standalone (12M, A) (12M, A) Total Operating Income PAT Interest coverage (times) Total Assets Net NPA Ratio Return on Total Assets (ROTA)* Adj Return on Total Assets (ROTA)** Note: A: Audited * Ratios have been computed based on average of annual opening and closing balances **Adj. ratios computed based on incl. of securitized/assigned (off-book portfolio) Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Gaurav Dixit Tel: Mobile: gaurav.dixit@careratings.com **For detailed Rationale Report and subscription information, please contact us at About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. 4 CARE Ratings Limited

5 Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/Facilities Name of the Instrument Date of Issuance Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook Commercial Paper CARE A2 Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities 1. -Non 2. Fund-based - LT-Term Loan Type Current Ratings Amount Outstanding (Rs. crore) Rating Date(s) & Rating(s) assigned in Date(s) & Rating(s) assigned in Rating history Date(s) & Rating(s) assigned in Date(s) & Rating(s) assigned in LT - 1)Withdrawn (22-May-14) LT CARE 2)CARE 3)CARE (21-Jul-15) (18-Dec-14) 2)CARE BBB+ (23-Sep-14) 3)CARE BBB+ 3. -Non 4. -Non LT - 1)Withdrawn (22-May-14) LT CARE 2)CARE 3)CARE (21-Jul-15) 5. -Non LT 1)Withdrawn (21-Jul-15) 5 CARE Ratings Limited

6 6. Commercial Paper- Commercial Paper (Carved out) 7. -Non ST - 1)Withdrawn (09-Jul-14) LT 1)Withdrawn (07-Jan- 2)CARE BBB+ (21-Jul-15) 8. -Non LT CARE 2)CARE 3)CARE (07-Jan- 2)CARE BBB+ (21-Jul-15) 9. Preference Shares- Reedemable LT 1)Withdrawn (07-Jan- 2)CARE BBB (RPS) (21-Jul-15) 1)CARE BBB (RPS) 10. -Non LT CARE 2)CARE 3)CARE (21-Jul-15) 2)CARE BBB (09-Jun-14) 11. Debt-Subordinate Debt LT CARE BBB; 1)CARE BBB; 2)CARE BBB; 3)CARE BBB; 1)CARE 1)CARE BBB (21-Jul-15) 2)CARE BBB+ 1)CARE BBB 12. -Non LT CARE (21-Jul-15) (23-Sep-14) 6 CARE Ratings Limited

7 2)CARE 3)CARE 13. -Non LT CARE 2)CARE 3)CARE (26-Aug-15) Non LT CARE 2)CARE 3)CARE (26-Aug-15) Non LT CARE 2)CARE 3)CARE (07-Jan Non LT CARE 2)CARE 3)CARE (01-Mar Non LT CARE 7 CARE Ratings Limited

8 2)CARE 3)CARE 3)CARE BBB+ (03-Jun- 18. Preference Shares- Non Redeemable Preference Share LT CARE BBB (RPS); 1)CARE BBB (RPS); 2)CARE BBB (RPS); 3)CARE BBB (RPS); 1)CARE BBB+ (RPS); 2)CARE BBB+ (RPS) 3)CARE BBB (RPS) (03-Jun Non LT CARE 2)CARE 3)CARE 3)CARE BBB+ (03-Jun- 20. Commercial Paper ST CARE A2 1)CARE A2 2)CARE A2 (18-Oct-17) 3)CARE A2 4)CARE A2 (26-May-17) 5)CARE A2 1)CARE A1 (07-Dec Non LT CARE 2)CARE (21-Sep-17) 3)CARE 8 CARE Ratings Limited

9 4)CARE 22. -Non LT CARE 2)CARE 3)CARE 23. -Non LT CARE 2)CARE (21-Sep-17) Non LT CARE 2)CARE (28-Sep-17) Non LT CARE Non LT CARE Non LT CARE (06-Feb-18) 9 CARE Ratings Limited

10 CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: Cell: meenal.sikchi@careratings.com ankur.sachdeva@careratings.com Ms. Rashmi Narvankar Mr. Saikat Roy Cell: Cell: rashmi.narvankar@careratings.com saikat.roy@careratings.com CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: deepak.prajapati@careratings.com BENGALURU Mr. V Pradeep Kumar Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , pradeep.kumar@careratings.com CHANDIGARH Mr. Anand Jha SCF No , First Floor, Phase 11, Sector 65, Mohali Chandigarh Cell: / Tel: /01 anand.jha@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: ramesh.bob@careratings.com JAIPUR Mr. Nikhil Soni 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: pratim.banerjee@careratings.com CIN - L67190MH1993PLC CARE Ratings Limited