Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable’ rating on the bank facilities of Geo VPL Finance Private Limited (Geo VPL).

 

The rating continues to reflect its established track record in financing against gold jewellery, adequate capitalisation, healthy asset quality and stable earnings profile albeit moderation on account of yield pressure and competition from banks. These strengths are partially offset by a small scale of operations with regional concentration, and moderate resource profile. 

 

In terms of scale of operations, the company has registered y-o-y growth of about 7% with assets under management (AUM) improved to Rs 171 crore as of March 31, 2023, from Rs 160.6 crore as of March 2022. In terms of profitability, stability of performance shown over the years with the average return on assets stood at 2.8%; however, in fiscal 2023 profitability has moderated due to yield pressure and competition from banks and as a result ROA stood at 0.9% for fiscal 23.  The ability of the company to further monitor and improve its profitability will be monitorable.

 

In terms of portfolio quality, 90+ dpd (days past due) stood at 0.47% as on March 31, 2023, improved from 1.5% as on March 31, 2021. Company reports NPA on 180+ dpd basis and the gold loan book had nil NPA as of June 30, 2023.

Analytical Approach

For arriving at the rating, CRISIL Ratings has considered the standalone business and financial risk profile of Geo VPL.

Key Rating Drivers & Detailed Description

Strengths:

• Established track record in financing against gold jewellery

Geo VPL has been operating for more than 30 years in Kerala region. Promoters have around three decades of experience in lending against gold jewellery in Kerala and Tamil Nadu; and adjoining areas. With the help of their expertise, the promoters have been able to establish strong brand of Geo VPL in a crowded gold loan market in Kerala region. The company has also expanded steadily in regions like Tamil Nadu and totally have 76 branches operational as on date. The company has also set up well-designed systems and processes to monitor the quality of its loans. Nevertheless, the approach of the promoters about growing the portfolio has been conservative and this is expected to continue going forward.

 

• Improving earnings profile; albeit moderation on account of auction losses in recent quarters

Geo VPL’s profitability has witnessed substantial improvement during past period. During fiscal 2023, the company’s profitability in terms of RoA reduced to 0.9% as against 3.9% during fiscal 2021. Further, during the first quarter of fiscal 2023, the RoA has reduced to around 1.8%. With the pandemic affecting the operations of the company, delinquencies saw a rise during last fiscal as the company couldn’t hold substantial auctions during this period. The auctions were hence pushed towards the latter quarters of fiscal 2022 and first quarter of fiscal 2023. This resulted in higher interest income accrual and hence the company reported a net loss in auctions. However, since then, company has been able to recover overdues and has witnessed improvement in 90+ dpd. The company reported a PAT of Rs 1.8 crore during FY23 as compared to a PAT of Rs 4.4 crore during fiscal 2022

 

• Adequate capitalisation

Capital position of Geo VPL has remained adequate and has witnessed steady improvement. During last two fiscals, the company added close to Rs 5 crore as accretions taking the networth of the company to around Rs 47 crore as on March 31, 2023 from around Rs 40.8 crore as on March 31, 2021. Further, given that the company has maintained its cautious stance towards growth, the gearing level remained under 4 times for last 3 fiscals; as on June 30, 2022 gearing stood at 3.1 times (3.0 times as on March 31, 2022). In terms of capital infusion, the promoters had infused equity of Rs 1 crore in fiscal 2020 and Rs 0.1 crore during fiscal 2022. The present promoter family have capacity to infuse capital at regular intervals or as and when required. The promoters, at this juncture, are also not interested in raising capital from external sources or any kind of stake dilution over the medium term. CRISIL Ratings, therefore believes, being in secured asset class like gold finance, the capital position of the company is expected to remain adequate, supported by lower asset-side risks as the collateral remains with the lender. Further, CRISIL Ratings also expects Geo VPL to receive need-based support from the promoters in the form of equity or loans if the need arises.

 

Weaknesses:

• Modest scale of operations and high regional concentration

Asset base has been growing consistently but remains modest at Rs 195.4 crore and loan portfolio Rs 171.29 crore, as on March 31, 2023, as compared to asset base Rs 184.5 crore and loan portfolio Rs 160.6 crore, as on March 31, 2022. Portfolio registered a de-growth of 15.7% during fiscal 2022 on account of company’s decision to focus on auctions and recoveries from overdue accounts. The promoters have also maintained their cautious stance which has resulted in lower growth in comparison to similar or larger size peers. Further, due to the lockdown situation during first quarter fiscal 2022, lesser branches were operational which led to de-growth in portfolio. In terms of regional concentration, it continues to remain high with around 80% of portfolio concentrated in Kerala region and the remaining in Tamil Nadu. While the company plans to enhance portfolio outside of Kerala region, this concentration level is not expected to change very materially over the medium term. Therefore, ability of the company to scale-up its portfolio and also steadily increase its geographic diversification will remain key monitorable over the medium term.

 

• Moderate resource profile

Geo VPL’s resource profile has largely remained moderate due to relatively high cost of borrowings for the last few years. The proportion of borrowings from NBFCs has continued to remain around 6% of its resource profile. The company has been able to raise funds (CC limits) from SBI, South Indian Bank and Federal Bank and IDFC First Bank at around 10.45%. However, apart from these lines, the other facilities raised from SFBs and NBFCs have come average cost of around 13-14%. Nevertheless, the promoters are focusing more on increasing reliance on raising funds through debentures to reduce their borrowing costs. Therefore, ability of the company to raise funds at competitive costs will remain key monitorable over the medium term.

Liquidity: Adequate

Geo VPL has adequate liquidity to manage total debt and loan repayments and operating expenses for the next three months through Aug 2023. As on May 30, 2023, the company had liquidity of around Rs 23.51 crore in the form of cash and unutilised CC /WCDL lines. Against the same, they have total debt obligation (including operating expense) of around Rs 17.40 crore till Aug 2023. This represents the liquidity cover (assuming no benefit of collections) of 3.3 times for 3 months. The liquidity is also supported by the steady level of collections that company has been reporting in fiscal 2023 (around Rs 45-50 crore). The company has been managing its monthly repayments in the past through its collections and accruals that is generated on month-on-month basis. CRISIL Ratings, therefore, believes that liquidity profile of the company will remain supported with its steady collections. Further, CRISIL Ratings also expects Geo VPL to receive need-based support from the promoters in the form of equity or loans if the need arises.

Outlook: Stable

CRISIL Ratings believes Geo VPL will continue to benefit from experience and strong understanding of promoters in gold finance segment. CRISIL Ratings also expects that Geo VPL remain adequately capitalised over the medium term.

Rating Sensitivity factors

Upward Factors:

• Significant improvement in the earnings profile, with ROA improving to 4.0-4.5% over the medium term
• Improvement in the scale of operations, with reduction in regional concentration; proportion of portfolio within Kerala reducing to below 70%
• Asset quality being maintained with 90+dpd at below 1%

 

Downside Factors:

• Weakening of asset quality metrics with 90+ days past due increasing and remaining above 5%.
• Any increase in the provisioning requirement from the present level leading to pressure on profitability.

About the Company

Incorporated in August 1994 in Kochi promoted by Mr K G Lawrence and his son, Mr Pradeesh Lawrence, Geo VPL is a non-systematically, non-deposit-taking, non-banking financial company that provides loans against gold jewellery and used four wheeler vehicle loans. The company operates through 76 branches in Kerala and Tamil Nadu. It is also engaged in the currency exchange and money transfer businesses.

Key Financial Indicators

Particulars	Unit	2023	2022	2021
Total assets	Rs crore	195.4	184.5	203.2
Total income	Rs crore	34.2	37.7	38.6
Profit after tax	Rs crore	1.8	4.4	7.1
Gross NPA (180+dpd)%	%	0.44	0.68	0.70
90+ dpd	%	0.47%	0.7	1.5
Gearing	Times	3.1	3.0	3.9
Return on assets	%	0.9	2.3	3.9

%GNPA is reported by company on 180+ dpd basis (in line with RBI regulations for non-systemic important NBFCs)

Any other information: Not applicable

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
NA	Term Loan	NA	NA	03-Mar-25	12.09	NA	CRISIL BBB/Stable
NA	Term Loan	NA	NA	06-Jun-24	6.66	NA	CRISIL BBB/Stable
NA	Cash Credit	NA	NA	NA	1	NA	CRISIL BBB/Stable
NA	Cash Credit	NA	NA	NA	25	NA	CRISIL BBB/Stable
NA	Cash Credit	NA	NA	NA	10	NA	CRISIL BBB/Stable
NA	Term Loan	NA	NA	31-May-28	75.4	NA	CRISIL BBB/Stable
NA	Cash Credit	NA	NA	NA	3	NA	CRISIL BBB/Stable