| Lulu Financial Services (India) Private Limited | ||||
| Rating reaffirmed at 'CRISIL BB / Stable'; rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
| ||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL BB/Stable’ rating on the long-term bank loan facilities of Lulu Financial Services (India) Private Limited (LFSPL).
The rating centrally factors in LFSPL being part of the Lulu group promoted by Mr Yusuff Ali M A and its linkage to, and expectation of continued support from, the group and the shareholding company – Lulu Financial Holdings Ltd. The rating also reflects the extensive experience of the promoters and the senior management team and adequate capitalisation of the company, backed by the promoters' and Lulu group’s strong commitment and high degree of financial flexibility to infuse funds in case of any exigency. These strengths are partially offset by the small scale of business being in the initial stage of operations with likely regional concentration and modest resource profile. |
Analytical Approach CRISIL Ratings has evaluated the standalone business and financial risk profiles of LFSPL. CRISIL Ratings has also noted that LFSPL derives benefits from being part of Lulu group (Lulu Financial Holdings Ltd). |
Key Rating Drivers & Detailed Description Strengths: * Extensive experience of the promoters and senior management team LFSPL’s management team has a rich experience in the finance industry. The promoter, Mr Adeeb Ahamed, established the first Lulu International Exchange branch at Abu Dhabi and has been instrumental in overseeing the strategic and rapid growth of the company’s physical and digital network in 11 countries. He is also the promoter of Lulu Financial Holdings as well as Lulu Forex Pvt Ltd (Lulu Forex), the Indian arm of Lulu International Exchange LLC, a reputed foreign exchange (forex) and money remittance company with its presence across Arabian Gulf, India, Bangladesh, Philippines, Hong Kong and Malaysia.
The managing director and chief executive officer, Mr Surendran Amittathody, has four decades of experience as a banking professional and joined Lulu International Exchange LLC (Lulu International) in 2015 as general manager. Prior to joining Lulu International, Mr Surendran was with Federal Bank. Other senior management team members also have over three decades of experience in the finance industry. Some of the new additions to the senior management team are ex-employees of reputed banks.
* Adequate capitalisation The networth of the company was adequate at Rs 13.1 crore as on March 31, 2023. The promoters are expected to provide support on an ongoing basis and in the event of distress as is evidenced by the latest capital infusion of Rs 8.5 crore done in fiscal 2023 in addition to Rs 8 crore infusion till March 31, 2022. The company is also looking at fresh equity infusion of Rs 8.5 crore from the promoters in the near term to expand their operations. The support from the promoters is expected to continue until the operations stabilise and the company generates sufficient cash flow to manage its expenses. The company is likely to maintain steady-state gearing of 2-3 times; any increase in gearing beyond the committed threshold will be a key rating sensitivity factor.
Weaknesses * Small scale of operations with regional concentration While the company was granted the Certificate of Registration by the Reserve Bank of India (RBI) in March 2019, operations commenced only from fiscal 2023; the delay was primarily due to pandemic-led disruptions. As the company is still in the initial stages of operations; its portfolio was modest at Rs 9.8 crore as on March 31, 2023 (Rs 6.1 crore as on March 31, 2022). However, association with the Lulu group (which is very large in size and scale) provides an advantage of being able to use the existing branches of one of their group companies in India, Lulu Forex, for scaling-up operations. Nevertheless, the company faced operational difficulties in fiscal 2022 while using the same branch network for both forex and gold loan businesses. Hence, management has launched few independent branches and is focusing operations through them. LFSPL plans to initially concentrate on the branches in Kerala, post which they will slowly diversify to other parts of the country. Around 50% of the portfolio is expected to be concentrated in Kerala till fiscal 2024. The ability of the company to scale-up while maintaining healthy asset quality will be a key monitorable.
* Modest resource profile LFSPL had borrowings of ~ Rs 4.5 crore in the form of overdraft limit from the Federal Bank as on March 31, 2023. The company is in discussion with various banks for its funding requirements and shall be able to raise Rs 5 crore by end of Q2 of fiscal 2024. It also plans to raise funds through Non-Convertible Debentures (NCDs) and Sub-debt in the current fiscal year to diversify its resource profile. Thus, the ability of the company to raise funds at a comparable cost of borrowing along with diversifying its resource profile will be a key monitorable. |
The company is net worth funded. The promoters are resourceful with high personal networth and will extend need-based funds to support operations. Liquidity is also backed by expectation of strong support from the promoters and the Lulu group, to meet any incremental capital requirement, on an ongoing basis and in case of exigencies. |
Outlook Stable LFSPL will remain adequately capitalised over the medium term, being a part of the Lulu group and with timely support from the promoters. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company LFSPL, incorporated in January 2018, was granted the Certificate of Registration in March 2019 by the RBI. The company is held entirely by the promoters through the holding company, Lulu Financial Holdings Ltd. The company is a part of the Lulu group promoted by Mr Yusuff Ali M A. Lulu Group International is a multinational conglomerate company that operates a chain of hypermarkets, retail stores, supermarkets, departmental stores and shopping malls, headquartered in Abu Dhabi, United Arab Emirates, with an annual turnover of around US $ 8 billion globally. Mr Yusuff Ali M A, the chairman and managing director, founded it in 2000. LFSPL plans on foraying into multiple businesses such as gold loans, working capital loans, personal loans, consumer durable loans and supply chain financing with their primary focus being gold loans considering its immense potential in South India. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
|
Criteria Details
|