| Fortune Integrated Assets Finance Limited | ||||
| Rating reaffirmed at 'CRISIL A-/Negative' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the long-term bank facilities of Fortune Integrated Assets Finance Limited (FIAFL; part of the Investment Trust of India Ltd [ITI]) at 'CRISIL A-/Negative’.
The ITI group has revised its lending strategy to focus on financing used private vehicles, small and light commercial vehicles, and gold loans. The management plans to downsize its underperforming product segments such as three-wheeler loans, tractor loans, education loans, loan against shares and unsecured small and medium enterprise (SME) loans. Also, it plans to defocus from nano loans which are unsecured small-ticket personal loans.
The outlook remains ‘Negative’ as the group’s revised strategy is yet to translate into sustainably improving asset quality and earnings performance.
The rating continues to reflect the adequate capitalisation of FIAFL and expectation of strong support from the ITI group. These strengths are partially offset by weak asset quality and limited, albeit improving, diversity in resource profile.
FIAFL’s asset under management (AUM) reduced to Rs 579 crore as on December 31, 2021, from Rs 691 crore as on March 31, 2021.
Under the Reserve Bank of India (RBI) Resolution Framework 1.0 and 2.0 for Covid-19-related stress, the group restructured around Rs 105 crore, i.e., 20% of assets under management (AUM) as on December 31, 2021. However, delinquencies on the restructured book were at around 0.6% as on March 31, 2022. Gross non-performing assets (GNPAs) of FIAFL improved to 3.5% as on March 31, 2022 (5.0% as on December 31, 2021) from 5.1% as on March 31, 2021. While the company is adequately capitalised, ability to scale up operations in-line with the revised strategy while maintaining asset quality will be a key monitorable. |
Analytical Approach CRISIL Ratings has analysed the standalone credit risk profile of FIAFL and factored in the strong support from the ITI group on an ongoing basis and in the event of distress. This is because FIAFL and the group have common promoters and share high operational, managerial and financial linkages. The group is likely to continue to provide support to the company considering its strategic importance. |
Key Rating Drivers & Detailed Description Strengths:
FIAFL is strategically important for the group’s business plan of having retail financing presence. FIAFL and other ITI group companies have common shareholders and directors, and operational linkages. The company should continue to receive operational and managerial support from the group on an ongoing basis, and funding support when in distress.
Tangible networth and adjusted gearing stood at Rs 387 crore and 0.7 times, respectively, as on December 31, 2021, against Rs 374 crore and 0.8 times, respectively, as on March 31, 2021. Networth coverage of asset side risk (networth to net non-performing assets) was healthy at 15.1 times. Given the expected support from the group and the company's growth plans, gearing should remain well below 3 times over the medium term.
Weaknesses:
GNPAs of FIAFL improved to 3.5% as on March 31, 2022, (5.0% as on December 31, 2021) from 5.1% as on March 31, 2021. Delinquencies had increased during the second wave, because the lockdowns had severely impacted the three-wheeler segment. However, asset quality performance improved thereafter as the restrictions on movement were eased thereafter, in line with peers in the vehicle financing segment. The company is winding down its three-wheeler loan book, which accounted for 35% of loan book as on December 31, 2021, as compared with 48% as on March 31, 2021. Financing of used private car and used light commercial vehicles, are the focus areas under the new strategy, and their proportion in the portfolio is expected to increase over the medium term.
FIAFL has restructured around Rs 105 crore, i.e., 20% of AUM as on December 31, 2021, however, delinquencies on this book were at around 0.6% as on March 31, 2022. Also, the company has taken Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) cover for around 36% of its advances book as on December 31, 2021. Thus, the impact of asset quality pressures on profitability is likely to be restricted because, CGTMSE covers 75% of ultimate losses on covered advances.
Nevertheless, asset quality remains vulnerable to the weak credit risk profiles of the borrowers as their cash flows are highly sensitive to business disruptions, thus it remains a key monitorable.
Total borrowings (including securitisation) declined to around Rs 555 crore as on March 31, 2022, from Rs 717 crore as on March 31, 2021, as the company deleveraged while reducing its book size. Of these borrowings, 51% was from three NBFCs, 23% from a central government development agency, 4% from banks, 10% from others, and 13% was through securitisation. The group has repaid and closed facilities with three existing banks, and availed facilities with three NBFCs during the six months ended March 31, 2022. While the group doesn’t require further credit lines in the near term because of the deleveraging, it will be critical to avail funds from multiple avenues such as new banks or through capital market instruments to scale up the business from hereon. Progress on this front is a key monitorable. |
Liquidity: Adequate Liquidity is largely supported by the strong financial flexibility of the promoters to infuse capital when needed. Apart from the expected scheduled collections from performing assets of Rs 45 crore, the group (aggregate of all lending entities) had liquidity of Rs 27 crore in the form of cash and equivalent as on March 31, 2022, vis-à-vis debt obligation of Rs 123 crore (for the lending entities) until August 31, 2022. |
Outlook: Negative Sustainable improvement in asset quality and earning performance is yet to be demonstrated by the ITI group under its revised strategy. |
Rating Sensitivity factors Upward factors
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About the Company FIAFL is a Mumbai-based non-deposit-taking systemically important non-banking financial company (NBFC) that majorly operates in the three-wheeler passenger, used private, and commercial vehicle financing segments. Its AUM stood at Rs 579 crore as on December 31, 2021, of which corporate portfolio was around 3%. However, the company has been reducing its exposure to three-wheeler and heavy commercial vehicles and focus on used private and light commercial vehicles over the medium term.
FIAFL commenced operations in 2012, and operated as a subsidiary of ITI (formerly, Fortune Financial Services (India) Ltd), a holding company of the ITI group. In 2015, Mr Sudhir Valia, the group’s promoter, and his family members increased their stake in FIAFL to around 75%, while ITI Ltd retained 25% ownership. Mr Chintan Valia, son-in-law of Mr Sudhir Valia, is managing director of the company.
For the nine months ended December 31, 2021, adjusted profit after tax (excluding income from derecognition of direct assignment, and amortization of intangible assets, [adj. PAT]) was Rs 10.1 crore on total income (net of interest expense) of Rs 110.0 crore, as compared with adj. PAT of Rs 19.6 crore on total income (net of interest expense) of Rs 150.6 crore in the fiscal 2021. Return on tangible managed assets (RoMA) was 1.1% and 1.4% during same time periods. |
Key Financial Indicators - FIAFL
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||
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This Annexure has been updated on 09-May-22 in line with the lender-wise facility details as on 27-Apr-22 received from the rated entity.
Criteria Details
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