| IFFCO Kisan Finance Limited | ||||
| Rating reaffirmed at 'CRISIL AA- / Stable'; rated amount enhanced for Bank Debt | ||||
| 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 'CRISIL AA-/Stable ' ratings to the bank loan facilities of IFFCO Kisan Finance Ltd (IKFL).
The ratings reflect the expectation of strong support to IKFL from its single largest shareholder, Indian Farmers Fertiliser Cooperative Ltd [IFFCO; ‘CRISIL AA+/Stable/CRISIL A1+’ which holds 41.3% directly and indirectly through a subsidiary - IFFCO Kisan Sanchar Limited (IKSL)] on an ongoing basis as well as in case of distress. IKFL is expected to benefit from the shared brand resulting in moral obligation of the parent to support the company, as well as from the extensive network of 45-50 million famers through cooperatives across the country and synergies of the IFFCO ecosystem. Also, IFFCO is empowered to appoint majority of the board and the management has significant experience in the business. The ratings also factor in the comfortable capitalisation of IKFL during the initial stage of operations and commitment of the board to maintain leverage below 4 times on a steady state basis. These strengths are partially offset by limited seasoning and nascent stage of operations as the underwriting strength remains to be tested.
IKFL commenced lending operations in fiscal 2019 primarily in the new and used tractor segments, and operated in seven states (Uttar Pradesh, Madhya Pradesh, Rajasthan, Bihar, Telangana and Andhra Pradesh, and Haryana) as of March 2022. The top two states accounted for around 66% of its loan book. Adequacy of the systems and processes remains to be seen as the company expands its product portfolio and geographic reach and as the loan book seasons.
During the first wave of the pandemic the company had provided moratorium to its customers and collections declined during the initial months but improved thereafter. Intermittent lockdowns and localised restrictions amid the second wave of the pandemic had again impacted collections. While the same has improved subsequently, any change in the payment discipline of borrowers or subsequent waves may affect delinquency levels.
IKFL’s gross non-performing assets (NPAs) inched up to 3.1% as on March 31, 2022, from 2.0% as on March 31, 2021 mainly on account of the Nov 12 RBI Circular. However, the company has not restructured any loans under the RBI’s August 2020 Resolution Framework for COVID-19-related stress. Nevertheless, ability to manage collections and asset quality will remain a key monitorable. The impact of any subsequent wave of the pandemic will also be closely monitored. |
Analytical Approach CRISIL Ratings has assessed the standalone business, financial and management risk profiles of IKFL and has factored in the strong support the company is likely to receive from its largest shareholder, IFFCO, on an ongoing basis and in times of distress. |
Key Rating Drivers & Detailed Description Strengths:
The ratings centrally factor in the operational, financial and managerial support that IKFL receives from IFFCO. IKFL was formed to cater to the financial needs of farmers and as a part of the business diversification strategy of IFFCO.
IKFL was initially a wholly owned subsidiary of IKSL. Subsequently, IFFCO, NH Capital (a group company of NH Group, the South Korean counterpart of IFFCO), ICICI Bank and a few other investors acquired stake in IKFL. With new shareholders onboard, IFFCO’s shareholding (directly and indirectly) in IKFL has reduced to 41.3%. However, IFFCO remains the single largest shareholder and all the shareholders act in concert. Furthermore, as per the shareholders agreement, IFFCO is empowered to appoint majority of the board of IKFL till it is the single largest shareholder which reinforces its commitment to the business. IFFCO and other shareholders are likely to infuse capital, on an ongoing basis and in the event of distress.
IKFL is also expected to benefit in customer acquisition from IFFCO’s extensive reach through its cooperative network and derive other operating synergies from the association. Dr U S Awasthi, chairman of the board of IKFL and the managing director and CEO of IFFCO, is also on the board of various other IFFCO subsidiaries. Given the shared corporate identity and brand, IKFL has been able to secure funding at competitive terms and is expected to enjoy good financial flexibility.
The company has access to capital to scale up business. IFFCO and other shareholders are committed to infuse additional capital over the medium term to fuel growth; net worth was Rs 274 crore as on March 31, 2022. While the gearing was 2.2 times as on that date, it is likely to increase as the loan book scales up and is expected around 4 times on a steady state. Commitment of capital support should prop up growth while providing cushion to absorb asset-side shocks given the nascent stage of operations.
Weaknesses
IKFL commenced lending operations in June 2018 and caters to relatively vulnerable borrowers. It had a loan book of Rs 864 crore as on March 31, 2022 (Rs 597 crore as of March 2021), comprising new (73%) and used (17%) tractor loans and rest are harvester loans, top-up loans and wholesale loans. Given its nascent stage of operations, the loan book is yet to season. Gross NPAs inched to 3.1% as on March 31, 2022 (2.0% as on March 31, 2021), and are yet to be tested through cycles. The loan book is geographically concentrated with two states accounting for 66%, though the company has expanded operations to seven states.
The company has an experienced management team and has put in place adequate systems and processes. It has digitised origination, underwriting, disbursement and collection end-to-end (except where collections are in cash where receipt is generated) and has not disbursed any loan involving physical movement of documents. The company has been profitable since fiscal 2019.
Ability to scale up operations while maintaining asset quality and profitability remains a monitorable. |
Liquidity: Strong The company has liquidity cushion of around Rs 112 crore as on March 31, 2022 in the form of cash and equivalent and unutilised bank lines against debt obligation of ~Rs 54 crore between April 2022 and July 2022. Line of credit from IFFCO can also be tapped when required. The structural asset-liability management (ALM) statement as of March 2022 indicates cumulative positive mismatch in buckets of up to one year. |
Outlook Stable CRISIL Ratings believes IKFL will receive strong support from IFFCO and will maintain comfortable capitalisation. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company IKFL is registered as a non-banking financial company-investment and credit company (NBFC-ICC) with the RBI. It was incorporated as Kisan Rural Finance Ltd in December 2017 as a wholly owned subsidiary of IKSL. Later, IFFCO, NH Capital, ICICI Bank and a few others acquired stake. IFFCO now holds 41.3% directly and indirectly and is the single largest shareholder. IKFL got its present name in January 2020 to incorporate the IFFCO brand. It had a loan book of Rs. 864 crore as on March 31, 2022, and operates in seven states: Uttar Pradesh, Madhya Pradesh, Rajasthan, Bihar, Telangana, Andhra Pradesh, and Haryana. It plans to expand its geographical presence and enter new product statements-the product portfolio currently comprises financing for old and new tractors, harvesters, top-up loans and wholesale loans.
During fiscal 2022 the company had profit after tax (PAT) of Rs 15.5 crore and income of Rs 127 crore compared with Rs. 14.9 crore and Rs. 87.7 crore, respectively, during the previous fiscal. |
Key Financial Indicators
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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)
*Interchangeable with short term bank facility |
| 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 16-Jun-2022 in line with the lender-wise facility details as on 29-Nov-2021 received from the rated entity.
Criteria Details
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