AU FINANCIERS (INDIA) LIMITED Ratings Instrument Amount (Rs. crore) Ratings 1 Remarks Long-term Bank Facilities 1,100 CARE A [Single A] Non Convertible Debenture 45 CARE A [Single A] Subordinated Debt 20 CARE A- [Single A Minus] Rating Rationale The ratings factor in the presence of strong institutional investors and experienced management of AUFL, adequate capitalisation levels, healthy financial performance, improvement in resources mix and comfortable liquidity profile. The rating is however constrained by moderate scale of operations, low seasoning of the recently originated portfolio, regional concentration and low product diversification. Portfolio and geographic diversification, asset quality as well as capital adequacy are key rating sensitivities. Background AUFL is a RBI registered non-deposit taking systematically important (ND SI) NBFC primarily engaged in commercial vehicle (CV) financing. Although the company is into CV financing business since 1996, the company started aggressively expanding its business since 2008. Over the last few years, the company has been receiving regular equity infusions from private equity funds which has enabled it to post significant growth in operations. Since the last five years (2009-2013), AUFL s loan portfolio and AUM has grown at aggressive CAGR of 158% and 95% respectively. As on March 31, 2013, the company s balance sheet size and networth stood at Rs.3135 crore and Rs.461 crore respectively. As on March 31, 2013, the company s branch network comprised of 177 branches which further increased to 226 as on June 30, 2013. Top three cities of Rajasthan, Maharashtra and Gujarat collectively constituted 87% of branch network as on March 31, 2013. Credit Risk Assessment Presence of strong institutional investors & experienced management: AUFL s investor base comprises of strong institutional investors. As on June 30, 2013, Warburg Pincus held 26.54% stake in the company, International Finance Corporation (IFC)- 18.34%, Motilal Oswal PE- 12.13% and ChrysCapital- 10%. Promoter stake, led by Mr. Sanjay Agarwal & affliates, stood at 30.97%. AUFL s rating derives support from strong institutional presence and the resultant strengthening of capital raising capabilities. The company s day to day operations are headed by Mr. Sanjay Agarwal, MD, who is assisted by an experienced team. Adequate capital adequacy: Given the high business growth, AUFL s capitalisation levels have declined over the previous year. However, the company s CAR stood at an adequate level of 20.82% as on March 31, 2013 [P.Y.: 33.55%] with Tier I CAR being 17.12% [P.Y.: 29.90%]. As on June 30, 2013, overall CAR stood at 18.39% with Tier I CAR being 15.02%. Financial performance: Since the last five years (2009-2013), AUFL s loan portfolio and AUM have grown at an aggressive CAGR of 158% and 95% respectively. Consequently, the company s balance sheet size and earnings profile have witnessed robust growth in the aforementioned period. During FY13, the company s loan book more than doubled to Rs.1783 crore on the back of healthy disbursements growth. Portfolio growth coupled with decline in cost of borrowings led to 72bps improvement in net interest margin to 6.58% during FY13. Provisions/ writeoffs have increased during FY13 due to loan writeoffs to the tune of Rs.21.5 crore [P.Y.: Rs.3.75 crore]. Improved margins and rise in other income have offset the impact of higher operating expenses and portfolio writeoffs thereby resulting in 60% y-o-y growth in PAT to Rs.80 crore during FY13. ROTA continued to be healthy at 3.73% during FY13. 1 Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1
During Q1 FY14, the company reported PAT of Rs.20 crore [P.Y.: Rs.14 crore] on total income of Rs.140 crore [P.Y.: Rs.78 crore]. Comfortable liquidity profile: As on March 31, 2013, the liquidity profile of the company was comfortable with positive cumulative mismatches across all the time buckets. Further, the company had unutilised lines of credit to the extent of Rs.494 crore. Improving resources mix: Over the last few years, AUFL has been diversifying its resources profile. The company has increased its reliance on market borrowings as compared to its traditional dependence on bank borrowings and securitisation. As on March 31, 2013, market borrowings comprised 19% of borrowings profile [P.Y.: 1%], bank & FI borrowings- 32% [P.Y.: 23%]. Dependence on securitisation as a percentage of borrowings profile has reduced from 61% as on March 31, 2012 to 39% as on March 31, 2013. Significant expansion in loan portfolio has been supported by rising gearing levels. Overall gearing increased to 5.56x as on March 31, 2013 [June 30, 2013: 4.46x] as compared to 1.97x in the previous year. Asset quality: AUFL s asset quality has been witnessing some deterioration since H2 FY13 due to subdued macro- economic environment and the resultant impact on commercial vehicle sector as a whole. During FY13, slippage ratio increased to 2% [P.Y.: 1.02%] led by weakening asset quality in HCV, MUV and car segments in particular which collectively accounted for 70.4% of total GNPAs as on March 31, 2013 [June 30, 2013: 66.7%]. Consequently GNPA and NNPA ratios have weakened to 0.81% [P.Y.: 0.43%] and 0.41% [P.Y.: 0.22%] respectively as on March 31, 2013 while net NPA/ NW stood at 1.67% [P.Y.: 0.55%]. During Q1 FY14, net slippages increased by 18.8 crore [FY13: Rs.19.5 crore]. As on June 30, 2013, GNPA and NNPA further weakened to 1.17% and 0.59% respectively while Net NPA/ NW stood at 2.90%. Lower seasoning portfolio: AUFL has witnessed significant portfolio growth in the last few years (during FY13, its loan portfolio more than doubled from Rs.824 crore as on March 31, 2012 to Rs.1783 crore as on March 31, 2013) and the performance of its recently originated portfolio needs to be seen. Further, the portfolio seasoning in new geographies is still low. Regional concentration: AUFL s operations are regionally concentrated. As on March 31, 2013, the top three states of Rajasthan, Gujarat and Maharashtra collectively constituted 87% of branch network [P.Y.: 89%] and 92% of AUM [P.Y.: 97%]. The state of Rajasthan alone comprised 47% of branches [P.Y.: 48%] and 50% of AUM [P.Y.: 54%] as on March 31, 2013. Although the regional concentration of the company has reduced due to business expansion in other states, the concentration in the top three states continues to be on higher side. Low product diversification: AUFL is primarily into the business of vehicle financing i.e. commercial vehicle, cars, three wheeler and multi utility vehicle financing which comprises a chunk of its business. As on March 31, 2013, vehicle financing accounted for 83% of its AUM [P.Y.: 90%]. However, since the last few years the company has started diversifying its portfolio by focusing on SME financing. As on March 31, 2013, SME financing constituted 13% of AUFL s AUM. Prospects The CV industry (domestic sales) observed a decline of 3.2 per cent in FY13 primarily due to sharp decline of 23 per cent observed in M&HCV segment. The decline has been primarily on account of sluggish freight demand coupled with the subdued demand from infrastructure, construction and mining sector. LCV segment, on the other hand, posted healthy rise of 15 per cent during the same period. However, FY14 has been the challenging period for LCV segment as well, which has been the driver for the industry growth during last two fiscals. During the first 4 months (Apr-Jul) of FY14, LCV segment witnessed drop of around 6 per cent on y-o-y basis. Gloomy economic scenario due to rising inflation levels and lower new job creation has significantly dented the consumer spending levels and thereby affecting the redistribution demand that is the prime driver for LCV demand. Given the challenging economic scenario and the resultant impact on the CV segment, there has been a rise in delinquencies in the CV financing business. Portfolio and geographic diversification, asset quality as well as capital adequacy are AUFL s key rating sensitivities. 2
Financial Performance (Rs. Crore) As on / Year ended March 31, 2011 2012 2013 Audited Audited Audited P&L Interest income 58 141 322 Income under Channel Business 5 5 3 Income from securitisation 72 70 71 Other income 23 34 50 Total Income 159 249 446 Operating Expenses 56 78 121 Interest Expenses 33 89 181 Provisions/ writeoffs 7 7 26 Prior period adjustments - - 4 PBT 63 74 114 PAT 42 50 80 Balance Sheet Fixed Assets (Net) 11 15 17 Investments 6 31 739 Loan Portfolio (own book) 418 824 1,783 Total Borrowings 363 655 2,489 Tangible Net worth 159 392 461 Total Assets 590 1,164 3,135 Assignments 774 1,640 1,707 Channel Business 83 116 75 AUM^ 1,276 2,581 3,550 Key Ratios (%) Net Interest Margin 6.06 5.86 6.58 Operating exps/ Avg. total assets 9.65 7.31 4.65 ROTA 10.07 5.71 3.73 Overall Gearing (times) 2.81 1.97 5.56 AUM / Net worth 8.01 6.59 7.7 Interest coverage (after prov) 1.97 1.57 1.48 Reported CAR 28.22 33.55 20.82 Reported Tier I CAR 23 29.9 17.12 Gross NPA Ratio* 0.29 0.43 0.81 Net NPA Ratio* 0.14 0.22 0.41 Net NPA to Net-worth* 0.45 0.55 1.67 *includes channel business & overdue installments of assigned assets ^Excluding direct assignment with no credit enhancement amounting to Rs.155 crore NIM has been calculated as net interest income/ average annual total assets (This follows our brief rational for entity published on 24 September 2013) 3
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