Rating Rationale
July 16, 2020 | Mumbai
Adani Capital Private Limited
'CRISIL AA-/Stable' assigned to NCD
 
Rating Action
Total Bank Loan Facilities Rated Rs.1100 Crore
Long Term Rating CRISIL AA-/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.100 Crore Non Convertible Debentures CRISIL AA-/Stable (Assigned)
Rs.50 Crore Non Convertible Debentures CRISIL AA-/Stable (Reaffirmed)
Rs.100 Crore Short Term Non Convertible Debenture CRISIL A1+ (Reaffirmed)
Rs.150 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AA-/Stable' rating to the non-convertible debentures of Rs 100 crore of Adani Capital Private Limited (Adani Capital; a part of the Adani group). Ratings on the other debt instruments and bank loan facilities of Adani Housing have been reaffirmed at 'CRISIL AA-/Stable/CRISIL A1+'.

The ratings on the debt instruments and bank loan facilities of Adani Capital continues to reflect strong support from the Adani group, both on an ongoing basis and in case of distress. This reflects the strategic importance of Adani Capital, a part of the financial services business of the group and moral obligation of the group to support the company given its majority shareholding and common brand. The rating also factors in the financial services businesses' (consolidated for Adani Capital and Adani Housing Finance Pvt Ltd (Adani Housing)) comfortable capitalisation and experienced management. These strengths are partially offset by limited track record of the group in the lending business.

From an industry perspective, the nationwide lockdown from March 25 till May 31, 2020, declared by the Government of India to contain the spread of the Covid-19 pandemic has impacted the disbursements and collections of financial sector entities. While the lockdown restrictions have been eased, any delay in return to normalcy will exert further pressure on collections and asset quality of financial sector entities.

On the liability side, the Reserve Bank of India (RBI) announced regulatory measures under 'Covid-19 - Regulatory Package', whereby lenders were permitted to grant moratorium on bank loans. CRISIL understands that currently, Adani Capital and Adani Housing are not availing of any moratorium on its bank loans.

On the asset side, Adani Capital and Adani Housing have offered moratorium to their borrowers and hence, the collections are expected to be below scheduled collections till August 31, 2020. Thereafter, collections could witness challenges as the income streams of the borrowers in MSME finance and affordable housing segment are likely to be impacted given the current challenging macro environment. CRISIL believes that Adani Capital and Adani Housing have sufficient liquidity to manage this period wherein asset-side collections will be impacted, while liability-side outflows continue as per schedule. In terms of liquidity, Adani Capital and Adani Housing, as on June 30, 2020, have liquidity of Rs 260 crore (Rs 133 crore of cash and equivalents and Rs 127 crore of unutilized bank lines). Against the same, they have total debt payments of Rs 95 crore over the next four months till November 30, 2020.

Analytical Approach

For arriving at the rating, CRISIL has combined the financial services business of the Adani group, which includes Adani Capital and Adani Housing, as there are strong linkages in terms of operation, management, infrastructure, and treasury. The rating also factors in the strong managerial and operational support from the Adani group. The group should support these entities, in business as usual and in distress situations, as and when required, considering the strategic importance of the financial services business to the group and high moral obligation owing to majority shareholding and shared brand.

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths:
* Expectation of strong support from the Adani group
The financial services businesses are an important avenue for the Adani group, which are engaged in corporate, micro, small, and medium enterprises and mortgage financing. The group, through its step-down subsidiaries, has 90% stake in both Adani Capital and Adani Housing and is expected to maintain this at a minimum 75% at all times. The group is one of the large conglomerates in India and has identified financial services as a key focus growth area for the long term. Moreover, Adani Capital's MSME lending business is expected to also tap into suitable business opportunities in the ecosystem of the Adani group entities.

The financial services businesses will also benefit from the shared brand in raising resources and building relationship with banks, other lenders and investors. A common brand implies a strong moral obligation on the group to support the financial services businesses both, in business as usual and in distress situations, as and when required. Apart from capital support, the financial services businesses also derive managerial and operational benefits from the group.

The Adani group is a diversified conglomerate whose credit risk profile is strengthened by market leadership in the ports, power generation, transmission, and trading segments. It has strong operating efficiencies and execution track record in most of its businesses. The promoter holding companies have strong financial flexibility, driven by the high market value of their holdings in the listed operating companies (around Rs 0.92 lakh crore as on March 31, 2020).

The rating is sensitive to the credit risk profile of the Adani group. Any material increase in the groups consolidated leverage levels or significant enhancement in debt in the promoter holding companies vis-a-vis the market value of their investments in the operating companies will remain key monitorables.

* Adequate access to capitalisation
Adani Capital has adequate access to capital to scale up its business, with the group having committed equity capital of Rs 600 crore to the combined financial services businesses over the medium term. Of this, Rs 330 crore was drawn down as of March 2020 by Adani Capital. Gearing, at consolidated level for the financial services business, is expected to increase as business scales up but is not likely to exceed 4 times by fiscal 2021. CRISIL expects strong capital support from the Adani group to the lending arms, both for growing business over the medium term and also to cover any asset side risks.

* Experienced management
The financial services businesses have experienced management teams to run operations and scale up business in both the housing finance and non-housing finance businesses. Long track record and extensive experience of the management team in the financial services space has helped establish the group's track record in the lending business in the three plus years since inception.

Weaknesses:
* Limited track record of operations
Adani Capital commenced operations in 2017 in the MSME finance and corporate finance segments. Housing finance business commenced operations in 2018 in the housing loan and loan against property (LAP) segments. The Loan book of Adani Capital increased to around Rs 1002 crore as on March 31, 2020 from Rs 521 crore as on March 31, 2019. Loan book of the financial services businesses stands at around Rs 1173 crore as on March 31, 2020. The businesses have focused on putting in place sound credit appraisal and risk management processes to support ramp-up in business with minimal credit costs. Ability to grow the loan book and manage asset quality as the portfolio seasons will be key monitorables.
Liquidity Strong

Liquidity for the financial services business is comfortable. Adani Capital and Adani Housing has adequate cash and liquid fund investments in mutual fund (Rs. 133 crore), and further cushion available through unutilised bank lines (Rs 127 crore) as on June 30, 2020. As on June 30, 2020, total debt obligation of the company till November 30, 2020 is 95 crore.

Outlook: Stable

CRISIL believes Adani Capital, along with Adani Housing, will continue to derive financial, managerial, and operational support from the Adani group and its promoter family, and will maintain comfortable capitalisation.

Rating Sensitivity factors
Upward Factor
* Upward revision in CRISIL's credit view on Adani group
* Significant scale up in market position of the financial services businesses while maintaining asset quality (gross NPA <1%) and earnings profile on a sustained basis

Downward Factor
* Reduction in the expected support to the financial services businesses by Adani group, or a downward revision in CRISIL's credit view on Adani group
* Deterioration in asset quality with gross NPA increasing to above 3%, over an extended period, thereby also impacting profitability.
About the Company

The Adani group is a diversified conglomerate with operations ranging from mines, ports, power generation and transmission, and real estate. The group has more than 11,000 employees in India and abroad.

Adani Capital received the non-banking financial company license in 2017 and has two main lines of business: MSME finance and corporate finance. The MSME finance will mainly include business loans, farm sector finance, commercial vehicle loans, and supply chain finance. In corporate finance, the company will opportunistically lend to mid-sized corporates. As of March 2020, Adani Capital has 59 operational branches in Gujarat, Maharashtra, Rajasthan and Karnataka. Loan book of Rs 1002 crore as on March 31, 2020, consists of 93% MSME finance and 7% corporate finance. Over the medium term, the company will be focusing on the MSME finance to grow the portfolio.

Key Financial Indicators - (Adani Capital & Adani Housing)
As on / for the year ended   Mar-20 Mar-19
Total assets Rs crore 1390 645
Total income Rs crore 146 72
Profit after tax Rs crore -4.7 -2.3
Gross NPA % 0.45 Negligible
Return on assets % -0.46 -0.5
Gearing Times 2.2 0.6
 
Key Financial Indicators - Adani Capital (Standalone)
As on / for the period ended   Mar-20 Mar-19
Total assets Rs crore 1206 578
Total income Rs crore 129 69
Profit after tax Rs crore 1.2 3.3
Gross NPA % 0.45  Negligible
Return on assets % 0.1 0.8
Gearing Times 2.6 0.7

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity
Date		 Issue Size
(Rs Cr)		 Complexity level Rating Assigned
with Outlook
INE01EQ07012 Short term NCDs 31-Dec-19 NA 31-Dec-20 48 Simple CRISIL A1+
INE01EQ07020 Short term NCDs 27-Feb-20 NA 26-Feb-21 50 Simple CRISIL A1+
NA Short term NCDs* NA NA NA 2 Simple CRISIL A1+
NA Commercial Paper NA NA 7 to 365 Days 150 Simple CRISIL A1+
INE01EQ07038 Non-convertible debentures 29-Jun-20 NA 29-Jun-23 50 Simple CRISIL AA-/Stable
NA Non-convertible debentures* NA NA NA 100 Simple CRISIL AA-/Stable
NA Term Loan NA NA 10-Sep-22 150 NA CRISIL AA-/Stable
NA Term Loan NA NA 25-Dec-22 100 NA CRISIL AA-/Stable
NA Term Loan NA NA 26-Nov-21 50 NA CRISIL AA-/Stable
NA Term Loan NA NA 15-Oct-22 25 NA CRISIL AA-/Stable
NA Term Loan NA NA  31-Dec-22 100 NA CRISIL AA-/Stable
NA Term Loan NA NA  26-Dec-22 25 NA CRISIL AA-/Stable
NA Term Loan NA NA  20-Jan-23 25 NA CRISIL AA-/Stable
NA Term Loan NA NA  13-Mar-23 25 NA CRISIL AA-/Stable
NA Term Loan NA NA  18-Mar-24 50 NA CRISIL AA-/Stable
NA Term Loan NA NA 01-Apr-23 100 NA CRISIL AA-/Stable
NA Term Loan# NA NA NA 75 NA CRISIL AA-/Stable
NA Working capital Facility  NA NA NA 115 NA CRISIL A1+
NA Proposed Short Term Bank Loan Facility NA NA NA 85 NA CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 175 NA CRISIL AA-/Stable
*yet to be issued
#yet to be utilized
 
Annexure - List of entities consolidated
Entity consolidated Extent of consolidation Rationale for Consolidation
Adani Capital Pvt Ltd Full Operational, financial and managerial linkages along with shared brand
Adani Housing Finance Pvt Ltd Full Operational, financial and managerial linkages along with shared brand
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  150.00  CRISIL A1+  01-06-20  CRISIL A1+  26-12-19  CRISIL A1+  31-12-18  CRISIL A1+    --  -- 
        17-04-20  CRISIL A1+  28-11-19  CRISIL A1+  14-09-18  CRISIL A1+       
            25-04-19  CRISIL A1+  08-08-18  CRISIL A1+       
            29-03-19  CRISIL A1+  26-06-18  CRISIL A1+       
                07-06-18  CRISIL A1+       
Non Convertible Debentures  LT  50.00
16-07-20  		CRISIL AA-/Stable  01-06-20  CRISIL AA-/Stable    --    --    --  -- 
Short Term Non Convertible Debenture  ST  98.00
16-07-20  		CRISIL A1+  01-06-20  CRISIL A1+  26-12-19  CRISIL A1+    --    --  -- 
        17-04-20  CRISIL A1+               
Fund-based Bank Facilities  LT/ST  1100.00  CRISIL AA-/Stable/ CRISIL A1+  01-06-20  CRISIL AA-/Stable/ CRISIL A1+  26-12-19  CRISIL AA-/Stable/ CRISIL A1+  31-12-18  CRISIL AA-/Stable/ CRISIL A1+    --  -- 
        17-04-20  CRISIL AA-/Stable/ CRISIL A1+  28-11-19  CRISIL AA-/Stable/ CRISIL A1+  14-09-18  CRISIL AA-/Stable/ CRISIL A1+       
            25-04-19  CRISIL AA-/Stable/ CRISIL A1+  08-08-18  CRISIL A1+       
            29-03-19  CRISIL AA-/Stable/ CRISIL A1+  26-06-18  CRISIL A1+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 175 CRISIL AA-/Stable Proposed Long Term Bank Loan Facility 175 CRISIL AA-/Stable
Proposed Short Term Bank Loan Facility 85 CRISIL A1+ Proposed Short Term Bank Loan Facility 85 CRISIL A1+
Term Loan 725 CRISIL AA-/Stable Term Loan 725 CRISIL AA-/Stable
Working Capital Demand Loan 115 CRISIL A1+ Working Capital Demand Loan 115 CRISIL A1+
Total 1100 -- Total 1100 --
Links to related criteria
Rating Criteria for Finance Companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support

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