Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term bank facility of ITI Finance Ltd (“ITI Finance”; a part of Investment Trust of India Ltd [ITI Ltd]) to ‘Stable’ from ‘Negative’ and reaffirmed the rating at ‘CRISIL A-’.

 

The revision in outlook is driven by a similar revision in CRISIL Ratings’ view on ITI Group (ITI Ltd, its subsidiaries and its associate company – ITI Finance) which is expected to support ITI Finance on an on-going basis, including in the event of distress. CRISIL Ratings’ view on the group factors in stabilization of its lending operations post running down the stressed legacy book and with demonstration of steady growth in in the new focus areas in last 2-3 fiscals. Along with this growth, asset quality metrics have also been gradually recovering and capitalisation remains adequate.

 

Apart from the benefits derived through association with ITI Group, the rating continues to reflect adequate capitalisation of the company. These strengths are partially offset by the company’s small scale of operations, modest, albeit-restoring, asset quality, moderate earnings profile, and limited diversity in resource profile.

 

For ITI group, capitalisation remains adequate with consolidated tangible networth of Rs 1,034 crore and adjusted gearing of 1.8 times as on June 30, 2024, (Rs 1,012 crore and 1.7 times, respectively, as on March 31, 2024). At a standalone level, ITI Finance had a tangible networth of Rs 445 crore, an adjusted gearing of-3.19 times and an overall capital adequacy ratio (CAR) of 23.15% on June 30, 2024 – denoting adequate capital position. This is further aided by strong financial flexibility of the promoters to infuse need based equity.

 

ITI group offers a diverse range of financial services including retail and institutional broking, commodities broking, asset management, debt trading, and lastly, its core segment - lending businesses. Overcoming the sluggishness post Covid-19 stress, the consolidated loan portfolio of the group grew at an annual rate of 60% to Rs 1,895 crore as of March 31, 2024. The growth is largely stemming from the parallel growth in the used car, used commercial vehicle, gold and housing portfolios along with run-down of the 3-wheeler and SME book. This traction was witnessed across portfolios: vehicle loans (78% of the consolidated loan book as of March 31, 2024, housed in ITI Finance) grew at 75% and gold loans (15%, housed in ITI Gold Ltd) grew at 56%. In addition, the housing loan portfolio, housed in Fasttrack Housing Finance Ltd (FHFL, 39% held directly and 61% indirectly by Mr. Sudhir Valia and family) – grew at 105% over the fiscal, to Rs 346 crore on March 31, 2024.

 

By the end of Q1 2025, the consolidated assets under management (AUM) further grew to Rs 2,113 crore with the asset mix remaining largely unchanged as vehicle loans (AUM of ITI Finance) formed 76% of it.

 

Adjacent to this growth, asset quality has also been recovering with gross NPAs (GNPA) for ITI Finance reducing from 3.5% in fiscal 2023 to 2.7% over fiscal 2024, however it has inched up slightly to 3.3% in Q1 2025 due to a lag in collections. Similarly, the GNPA for FHFL reduced from 2.3% in fiscal 2023 to 0.5% a year later, and eventually it stood at 0.8% on June 30, 2024. However, for ITI Gold - the GNPA has inched up from 0.5% in fiscal 2023 to 1.8% in fiscal 2024 and to the same stood at 1.4% as on June 30,2024. Nonetheless, the overall GNPA reduced from 8.0% in fiscal 2023, to 4.9% in fiscal 2024 and it remained flat over Q1 2025. This was driven by reduction in incremental slippages and overall base effect.

 

Profitability, though modest, remained stable over fiscal 2024 aided by expanded net interest income (NII) due to increased scale of operations. Consolidated return on managed assets (RoMA) increased marginally from 1.1% in fiscal 2023 to 1.3% in fiscal 2024 due to cost optimization and lower credit cost and eventually, it further increased to 2.8% (annualized; RoMA adjusted for extraordinary income[1] was 2.2%) for Q1FY25. On a standalone basis, for fiscal 2024, ITI Finance reported a profit after tax (PAT) of Rs 22 crore (RoMA of 1.3%) in fiscal 2024 versus PAT of Rs 17 crore (RoMA of 1.4%) in fiscal 2023. The metric further improved to PAT of Rs 13 crore (RoMA of 2.7% [annualized, RoMA adjusted for extraordinary income1 was 1.7%]).

 

[1] In Q1 2025, the company received insurance claim worth Rs 5 crore against an insured windmill.

Analytical Approach

To arrive at the overall rating, CRISIL Ratings has analysed the standalone credit risk profile of ITI Finance and thereafter factored in strong support from ITI group, to be received on an ongoing basis, including in the event of distress. This is because ITI Finance and the group have common promoters and share high operational, managerial and financial linkages.

Key Rating Drivers & Detailed Description

Strengths:

• Benefits from linkages with the ITI group and support expected thereof: ITI Finance is strategically important for the group to execute its vision of establishing itself in the retail financing space. ITI Finance and the primary entity of the group, ITI Ltd - have common shareholders and directors, and operational linkages. Around 75% of the lending AUM and 60% of the profits of the group, are contributed by ITI Finance. The company is expected to continue receiving operational, managerial and funding support from the group on an ongoing basis, and when in distress. The group houses many other businesses such as broking and asset management in addition to their diversified lending businesses and has historically shown its support via timely infusions of funds in group entities.

 

• Adequate capitalisation in relation to the scale and nature of operations: Capitalisation of the company remains adequate, with tangible networth at Rs 432 crore and adjusted gearing of 3.2 times as on March 31, 2024, against Rs 406 crore and 2.2 times, respectively as on March 31, 2023. Tangible networth was Rs 445 crore as on June 30, 2024. Networth coverage of asset side risk (networth to net non-performing assets) was healthy at 12 times as on June 30, 2024 vis a vis 15 times on March 31, 2024. With support being available from the group and the growth plans of the company, gearing should remain well below 3 times over the medium term.

 

Capital adequacy for the ITI Finance stood comfortable at 22.9% as on March 31, 2024 against 29.5% as on March 31, 2023 and 23.15% as on June 30, 2024. At the group level (excluding ITI Finance Ltd), networth stood at Rs 700 crore and adjusted gearing was 0.6 times as on June 30, 2024, as against Rs 688 crore and 0.5 times as on March 31, 2024 respectively.

 

In the medium term, majority of the group capital is expected to remain deployed in the lending business – particularly in ITI Finance given its sizable share in the consolidated lending portfolio. This, along with stabilisation in internal accruals, is expected to support the capitalisation of the company in the normal of course of business.

 

Weaknesses:

• Small scaled, though stabilizing, operations supported by revamped business model: Following the challenges that surfaced in the aftermath of the pandemic outbreak, the company’s growth remained subdued for a prolonged period. Between fiscals 2021 and 2023, the company’s AUM grew at a modest 2 year-compounded annual growth rate (CAGR) of ~33%, to Rs 849 crore as on March 31, 2023. Thereafter, as demand recovered and ground level situation restored, the growth started to pick up gradually. Correspondingly, the company re-organized its business strategy to exit three-wheeler segment due to allied credit costs, and focus only on commercial vehicle and car segment. Driven by these factors, the AUM grew by 75% over fiscal 2024 to Rs 1,487 crore and further to Rs 1597 crore as on June 30, 2024. As of June 30, 2024, 75% of the vehicle finance portfolio comprises used car segment, 20% was deployed as commercial vehicle loans and balance was the legacy three-wheeler portfolio which is being run down. This growth in overall AUM while parallelly running down a sizable, high delinquency-prone three-wheeler portfolio - has helped managing the overall delinquencies.

 

Nonetheless, due to the drawback faced post the pandemic – the momentum of scale-up has been staggered causing the overall AUM to remain small at <0.1% as a share of the overall NBFC sector. Hereon, the company’s ability to successfully and steadily scale its business operations remains a key sensitivity factor.

 

• Ability to manage asset quality and profitability alongside growth, needs to be demonstrated: The asset quality of ITI Finance, after remaining subdued for long, has started to restore with 90+ DPD reducing to 2.7% as on March 31, 2024, from 3.5% a year ago. However, it again inched up to 3.3% as on June 30, 2024, due to reduced resolution across DPD buckets. In the past, delinquencies had peaked in fiscal 2021 due to the stress faced post outbreak of Covid-19, whereby the three-wheeler segment was severely impacted.  Since ITI Finance had majority of its portfolio in this segment, its overall reported asset quality metrics deteriorated. Post this, the company started winding down its three-wheeler loan book, which now stands at 4% in June-2024 as compared with 34% two years back in March-2022. Under the revised business strategy, the company is focusing on financing of used private cars, and used commercial vehicles (small, light and medium and heavy), and this is expected to form a significant proportion of the book in the future. However, as the portfolio has only recently resumed growth – as it scales at a healthier pace – the ability to contain delinquencies at sound levels remains critical.

 

Similarly, the company’s profitability – though stable, remains moderate. It reported a PAT of Rs 22.0 crore (RoMA: 1.3%) in fiscal 2024, against Rs 17.4 crore (RoMA: 1.4%) in fiscal 2023, backed by marginally higher net interest income (NII) due to growth in AUM and reduction of credit cost to 1.3% of average assets in fiscal 2024 from 2.4% in fiscal 2023. Operating expenses, though improving, remain high, at 9.2% of average assets for fiscal 2024 with employee costs forming 41% of total operating expenses. For Q1 2025, PAT was Rs 13 crore which translated to a RoMA of 2.7% [annualized, RoMA adjusted for extraordinary income1 was 1.7%]), with similar trajectory noted in credit cost and operating expenses.

 

Due to inherent sensitivity of the target segment to business disruptions, the overall asset quality is expected to remain vulnerable. To tackle this, the company shall be required to work towards necessary upgradation in risk underwriting, monitoring and collection efforts. Thus, as the momentum of growth normalizes upwards, the ability of the company to profitably scale up operations in focus segments, while managing asset quality, is a key monitorable.

 

• Limited diversity in the borrowing profile: Total borrowings for ITI Finance Ltd increased to around Rs 1,418 crore as on June 30, 2024, from Rs 1363 crore a quarter ago, and from Rs 862 crore March 31, 2023. This growth mirrored the asset-side growth demonstrated over this period. Of these borrowings, ~65% were from group entities and rest from banks and other non-banking financial companies (NBFCs). The effective cost of funds for the intra-group borrowings was ~5.7% for fiscal 2024 whereas that for external borrowings was ~10.5%. While the group continues to extend support in the form of inter corporate debts at competitive costs, it will be critical for the company to avail funds from other external avenues as well, such as banks as well as capital markets, to maintain a sustainable and diverse liability franchise which will support balanced asset side growth. 

Liquidity: Adequate

Liquidity is managed at a standalone as well as overall group level. Given the degree of financial flexibility within the group, if required, companies can receive liquidity support from other group entities. As on September 30, 2024, liquidity for ITI Finance Ltd was adequate with Rs 161 crore in the form of cash, bank balances, and unutilised bank lines , as against repayment of Rs-113.51 crore (including repayments scheduled for ICDs) scheduled over the following 5 months. In addition to this there has been no cumulative ALM mismatches as June 30, 2024.

Outlook: Stable

The company is expected to continue benefiting from its association with ITI Group and maintain adequate capitalization while it scales the business.

Rating sensitivity factors

Upward factors

• Upward revision in CRISIL Ratings credit view on the group
• Significant and sustained scale up in AUMs across asset classes
• Material improvement in asset quality, leading to enhanced profitability with RoA remaining over 2% on a sustained basis

 

Downward Factors

• Deterioration in the credit profile of the parent by 1 or more notches and/or Change in the extent of ITI group or promoter’s ownership of the company indicating a weakened support stance
• Significant deterioration in asset quality, thereby constraining profitability at RoA of 1.0% or below for a prolonged period.
• Inability to scale the lending portfolios resulting in constrained market position

About the Company

ITI Finance is a Mumbai-based, non-deposit-taking systemically important NBFC that majorly operates in the three-wheeler passenger, used private, and commercial vehicle financing segments. Its AUM stood at Rs 1597 crore as on June 30, 2024 The company has been reducing its exposure to three-wheeler and heavy commercial vehicles and will focus on used private car and used light commercial vehicles over the medium term.

 

ITI Finance commenced operations in 2012,and operated as a subsidiary of ITI Ltd (formerly, Fortune Financial Services (India) Ltd), a holding company of the ITI group. In 2015, Mr Sudhir Valia (the group’s key promoter) and his family members increased their stake in ITI Finance to around 75%, while ITI Ltd retained 25% ownership. Mr Chintan Valia, son-in-law of Mr Sudhir Valia, is the managing director of ITI Finance.

Any other information: Not Applicable