Muthoot Vehicle and Asset Finance Limited November 15, 2017 Ratings Facilities Amount (Rs. crore) Ratings 1 Remarks Long term bank facilities Long term/ short term Bank facilities Short term Bank facilities Details of instruments/facilities in Annexure-1 Rating Rationale 17.50 (Rs. Seventeen crore fifty lakhs) 230.00 (Rs.Two hundred and thirty crore) 20.00 (Rs.Twenty crore only) CARE BBB+; Stable (Triple B Plus; Outlook: Stable) CARE BBB+; Stable/ CARE A2 (Triple B Plus; Outlook: Stable/ A Two) CARE A2 ( A Two) Assigned Assigned Assigned The ratings assigned to the bank facilities of Muthoot Vehicle and Asset Finance Limited (MVFL) factor in benefits and synergies derived from being part of Muthoot M.George group, longstanding experience of promoters in the NBFC industry, established track record of operations and experienced management team, presence of loan appraisal systems, internal control systems, comfortable capitalization level and healthy profitability profile. The ratings are constrained by moderate size of operations, geographical concentration of loan portfolio, and majority of loan portfolio towards passenger car loans, limited seasoning of the portfolio and moderately diversified funding profile. In light of growth plans towards passenger car loan portfolio envisaged by the company in the medium term, ability of MVFL to improve its asset quality & profitability while geographically diversifying its portfolio would be the key rating sensitivities. Detailed description of the key rating drivers Key rating strengths Benefit and synergies derived from being part of Muthoot M. George group MVFL is a part of Muthoot M.George group with Flagship Company being Muthoot Finance Limited (MFL) which is the largest gold loan company in India. During FY17, MFL generated total income of Rs.5,746.7 crore and PAT of Rs.1,179.8 crore. Apart from gold loan business the group is also engaged in several businesses including hospitals, Housing Finance, foreign transfers, Insurance, real estate, Microfinance, etc. MVFL shares the common brand name and promoters with MFL which provides sufficient business support and funding support from the promoters whenever it is required. The promoters of MVFL held 80.1% shares in MVFL and 73.7% in MFL (about Rs.14,000 crore in terms of market value of MFL shares as on September 30,2017). The ability of the promoters to provide funding support to the company remains favorable. Also the promoters have provided guarantees to the bank lines sanctioned to MVFL. The company also gets managerial support from the group since the company s board comprises of eight members of which five of them from the group. 1 Complete definition of the ratings assigned are available at www.careratings.com and in other CARE publications 1 CARE Ratings Limited
Established track record of operations and experienced management team MVFL has established track record of operations spanning over two decades in Asset financing business primarily in the state of Kerala. MVFL has an experienced senior management team in the lending space which has been associated with the group for long time. The operations are looked after by a team overseen by the board which comprises of directors with vast experience in the NBFC sector. Whole time director, Mr.K.P. Padma Kumar, heading the operations overseeing the Human Resources, Credit and Operations, Finance and Planning, and Secretarial departments of MVFL. He has over 36 years of experience in the banking industry in various capacities in different banks including SBI. He was also the former chairman of Federal bank. The strategic decisions and the business plan approvals takes place at the board level which is headed by Managing director, Mr. George Alexander Muthoot. Improvement in the asset quality however limited seasoning in car loan portfolio The company reported improvement in asset quality with reduction in gross NPA from 4.3% (150 days norms) as on March 31, 2016 to 2.2% (120 days norms) as on March 31, 2017. The company reported gross NPA of 2.7% on 90 day basis as on September 30, 2017. On like to like basis, 120+ dpd as on September 30, 2017 was 1.7% as against 2.2% as on March 31, 2017. Since the company s focus is towards passenger car loans which started two years back, the seasoning of the car loan book is low. However, the company had put in place the processes and systems to have periodical check on their delinquencies and controlling mechanisms. With increased focus on car loan book by the company, the ability to grow their business by controlling their asset quality remains critical over the medium term. Comfortable Capitalization profile MVFL s capitalization profile is comfortable with Tier I capital and Total Capital as on March 31, 2017 was 37.27% and 37.60%. The company shares the common promoters with MFL which would provide additional comfort due to availability of capital support from the group. The company s current capitalization profile would be sufficient for the next three years to grow its loan book by 30-35% with gearing of around 3-4 times. Healthy Profitability profile The company s profitability profile is comfortable with ROA of around 4.3% during FY17 as compared to 4.4% during FY16. The company reported PAT of around Rs. 8.5 crore during FY17 (PY: Rs. 8 crore) and around Rs. 3.3 crore during H1FY18. Since MVFL offers lending rates for passenger cars in line with banks and larger NBFCs, the overall yield has reduced to 16.1% in FY17 and further to 15% in H1FY18 from 17.8% in FY16 due to increased focus on passenger car loan book. However, NIM remained healthy at 9.2% in FY17 since the company s cost of borrowing reduced from 10.4% in FY16 to 8.5% in FY17 due to moderation in the deposits rates. The company s bad debts recovery of vintage loans was about Rs. 7.3 crore (about 3.7% of average total assets) during FY17 (PY: Rs. 5.3 crore) contributed to profitability to an extent during FY17. However, the overall profitability is expected to moderate due to increased focus towards low yielding passenger car loan portfolio and reduction in bad loan recovery since the vintage loans are expected to run down completely in the near term. 2 CARE Ratings Limited
Key rating weaknesses Moderate size of operations and Geographical concentration of loan portfolio MVFL s loan portfolio outstanding as on March 31, 2017 is moderate at Rs.205.5 crore (PY: Rs.116.6 crore) and operates majorly in Kerala with more than 99% of their portfolio is in Kerala and small portion in Tamil Nadu. The company operates with 27 branches of which 23 branches are in Kerala and one branch in Coimbatore, Tamil Nadu. The company has one branch each in New Delhi, Bangalore (Karnataka) and Secundarabad (Telangana) however the operations are yet to begin as of now. Concentrated loan portfolio with majority being passenger car loans MVFL engages in asset financing primarily in Kerala offering passenger cars financing, commercial vehicle loans, machinery financing and business development loans however the Passenger car (including new and used) which was started during FY2015 accounted majority of the loan portfolio with low seasoning. Of the total loan book of Rs. 205.5 crore (PY:Rs.116.6 crore) as on March 31, 2017, passenger car loans accounted major portion of the portfolio with loan book of Rs. 152.2 crore (PY: Rs.57.1crore) (about 74% of the total portfolio) and further increased to Rs. 225.4 crore (about 83% of the total portfolio) as on September 30, 2017. The other loans in the portfolio as on Sep 30, 2017 are Machinery equipment loans (7.3%), Commercial vehicle loans (7.9%) and Business development loans (1%). Moderately diversified funding profile MVFL s borrowing profile mostly consists of public deposits and working capital loans from few banks. The established brand name of Muthoot M George group in Kerala provides benefit for the company for mobilising funds through deposits from the public as MVFL is the only deposit taking entity in the group. The company s public deposits was at 1.3 times of Net owned funds (NOF) as on March 31, 2017 (PY: 0.7 times) which is inline with RBI norms of not exceeding 1.5 times of NOF. With further business expansion plans by the company, the ability to diversify their funding profile remains critical. The company also has borrowings from the promoters in the form of deposits and unsecured loans in the funding profile. MVFL s liquidity profile is moderate with mismatch in their ALM due to longer tenure of advances than their borrowings. However, in order to waive out the mismatch, the promoters have provided the funding support to the company in the form of deposits and loans in the past. As on September 30, 2017, the loan from directors was at Rs. 5 crore (2% of total liabilities) and deposits was at Rs.3.6 crore (1.5% of total liabilities). Analytical approach: Standalone approach and factoring in the linkages with group/parent Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition CARE s methodology for Non-Banking Financial Companies Financial ratios Financial sector Rating Methodology: Factoring Linkages in Ratings About the company Muthoot Vehicle and Asset Finance Ltd (MVFL) is the Vehicle and Asset Finance company of The Muthoot M. George Group incorporated in 1992 as Muthoot Leasing and Finance Ltd. In the year 2008, the name of the Company was 3 CARE Ratings Limited
formally changed to MVFL to reflect the nature of financial solutions being provided by the Company. of the company held 100% shares in MVFL. The promoters MVFL, as per the certification by Reserve Bank of India, is a Deposit taking Asset Finance Company (AFC-D). MVFL carries out its operations through a network of 27 branches spread across in Kerala & one branch each in Tamil Nadu, Karnataka, Telangana and New Delhi. The Company is into financing of new and used passenger cars, commercial vehicles, 3- Wheeler, earth moving equipment, tippers, JCBs etc, to urban and rural sectors in Kerala. Brief Financials (Rs.crore) FY2016(A) FY2017(A) Total operating Income 34.9 39.0 PAT 8.0 8.5 Total Assets 152.9 241.7 Interest Coverage (times) 2.2 2.4 ROTA (%) 4.4 4.3 Net NPA (%) 3.9 1.8 Note: A Audited; (a) ROTA Ratio has been computed based on average of annual opening and closing balances Status of non-cooperation with previous CRA: NA Any other information: NA Rating History for last three years: NA 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 www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact Name: Mr P. Sudhakar Tel: 044-2849 7812 Mobile:+91 9442228580 Email: p.sudhakar@careratings.com **For detailed Rationale Report and subscription information, please contact us at www.careratings.com 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
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. Annexure1: Details of Rated Facilities Name of the Instrument Fund-based - LT-Term Loan Fund-based - LT/ ST- Working Capital Limits Date of Issuance Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook - - - 17.50 CARE BBB+; Stable - - - 230.00 CARE BBB+; Stable / CARE A2 Fund-based - ST-Working Capital Demand loan - - - 20.00 CARE A2 Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities 1. Fund-based - LT-Term Loan 2. Fund-based - LT/ ST- Working Capital Limits 3. Fund-based - ST-Working Capital Demand loan Type Current Ratings Amount Outstanding (Rs. crore) Rating LT 17.50 CARE BBB+; Stable LT/ST 230.00 CARE BBB+; Stable / CARE A2 2017-2018 Rating history 2016-2017 2015-2016 - - - - - - - - ST 20.00 CARE A2 - - - - 2014-2015 5 CARE Ratings Limited
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