Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB-/Stable’ rating to the long-term bank facility of Niyogin Fintech Limited (NFL).

 

NFL is an early-stage company that started operations in 2018. NFL comprises of IServeU Technology Pvt Ltd (ISU, 51% subsidiary of NFL) and MoneyMap Investment Advisors Pvt Ltd [MoneyFront, a wholly owned subsidiary of Investdirect Capital Services Pvt Ltd (60.76% subsidiary of NFL)].

 

The rating reflects the healthy capitalisation of NFL and extensive experience of the promoters and the management team. However, these strengths are partially mitigated by the small, albeit, increasing scale of operations and modest asset quality and earnings profile.

 

ISU, which was acquired by NFL in fiscal 2021, is a tech platform that provides financial inclusion products and services such as Micro-ATM, Aadhaar-enabled Pay System (AePS), Domestic Money Transfer (DMT), Bharat Bill Pay System (BBPS) etc. The company onboards business correspondent agencies who have large distribution network of retail stores/local touchpoints. Through this model, the financial inclusion services is provided to end consumers in rural areas and provides rails to process transactions originating on these distribution network.

 

The company also has a lending business in which it provides small-ticket unsecured business loans to micro, small and mid-sized entrepreneurs (MSMEs) and focuses on market access through financial professionals. This business also earns commissions for every successful disbursement where NFL refers MSMEs to banks.

 

The capital position of the lending business remains strong, with networth of Rs 286.1 crore as on June 30, 2023. On a consolidated basis, networth was healthy at Rs 268.7 crore as on June 30, 2023 (Rs. 272.6 crore as on March 31, 2023). Until March 2023, the company had no long-term borrowings at even a consolidated level. During the first quarter of fiscal 2024, the company secured a term loan of Rs. 15 crore, leading to a gearing of 0.05 time as on June 30, 2023. Gearing should be comfortable over the medium term. 

 

The rating also considers the extensive expertise of the founders, namely, Mr Amit Rajpal and Mr Gaurav Patankar, and that of key managerial personnel who have held senior roles at renowned firms within the banking, financial services and insurance (BFSI) sector. The MD and CEO, Mr Tashwinder Singh, who has an extensive experience of over 26 years, oversees the operations of the company. The management has also been able to get funding of Rs 235 crore in the first year of operations. CRISIL Ratings also notes that the board has approved the issuance of warrants worth Rs 80 crore, of which the company has already received Rs 20 crore in the second quarter of fiscal 2024 and the remaining is expected to be received over the next 18 months.

 

These strengths are partially offset by the small albeit increasing scale of operations and the modest asset quality and earnings profile of the company. While ISU was incorporated in fiscal 2016 and operations had started in fiscal 2018, NFL acquired ISU only in fiscal 2021 and the company’s operations started to ramp up only in fiscal 2022 post the investment of Rs 50 crore by NFL. Hence, the company is still in its nascent stages of operations. While the company has successfully onboarded several significant enterprise partners onto the ISU platform, the most recent one being Indian Post Payment Bank in September 2022 and others such as NSDL Payments Bank, the company’s ability to retain existing partners while increasing tie-ups with new partners would remain key monitorable.  The lending business also had modest assets under management (AUM) of Rs. 117 crores as on June 30, 2023, as compared to Rs 91.9 crore as on March 31, 2023. 

 

During the first half of fiscal 2024, gross transaction value (GTV) of ISU rose by 85.6% (annualised) to Rs 21,455.7 crore, from Rs 15,023.7 crore as on March 31, 2023. The GTV is likely to improve over the medium term, in line with increase in number of partnerships with BCs. However, on a standalone basis, ISU reported operating losses in fiscal 2023, due to large investments towards upgradation of technological infrastructure. Ability of the company to achieve a breakeven and attain profitability by limiting incremental cost in the coming years will be a key monitorable. The lending business too reported losses of Rs 2.1 crore during the first quarter of fiscal 2024, following a loss of Rs 6.4 crore in fiscal 2023. Nevertheless, the business is expected to generate profit as the company achieves economies of scale.

 

In addition, the lending business faced higher delinquencies with 90+ days past due (dpd) of Rs 15.6 crore (13.3%) as on June 30, 2023. However, these delinquencies also included a sizeable portfolio from the past, against which the company has a first-loss default guarantee (FLDG) cover of Rs 11.8 crore. Hence, the actual portfolio at risk is lower at an adjusted 90+ dpd of nearly 3.2%. Nevertheless, CRISIL Ratings notes that the collection efficiency[1] remains modest, averaging 78% for the 12 months ending June 30, 2023.

[1]Collection efficiency = (Current collections + Overdue collections)/Current billing

Analytical Approach

To arrive at the ratings, CRISIL Ratings has combined the business and financial risk profiles of NFL and its subsidiaries, namely IServeU Technology Pvt Ltd and Investdirect Capital Services Pvt Ltd.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

Healthy capital position

Consolidated networth was healthy at Rs 268.7 crore as on June 30, 2023 (Rs 272.6 crore as on March 31, 2023). This is further backed by Rs 235 crore raised by promoters through institutional investors, within the first year of operations. More recently, the board had also approved the issuance of warrants worth Rs 80 crore, of which the company has already received Rs 20 crore in the second quarter of fiscal 2024 and the remaining is expected to be received over the next 18 months.

 

The lending business is well-capitalised, marked by networth of Rs 286 crore as of June 30, 2023. Until March 2023, there was no reliance on external debt, which demonstrates low financial leverage. However, in the first quarter of fiscal 2024, the company raised debt of Rs 15 crore, marking the first instance of debt financing and introducing an element of leverage into its capital structure. While leverage would rise over the medium term, it should remain healthy and is a key monitorable.

 

In fiscal 2022, the management infused Rs 50 crore into ISU, resulting in a comfortable capital position aligned with the current and anticipated scale of operations for the medium term. As on June 30, 2023, networth of ISU stood at Rs 31.78 crore. The company continues to be debt-free and does not foresee any immediate need for additional funds in the near to medium term. Future capital infusions would be directed towards upgrading the existing infrastructure but should be minimal over the medium term. Moreover, while the company is incurring operating losses currently, it is expected to breakeven in the near term. Once operations turn profitable, it would be able to fund capital requirements through its own accretions over the medium term.

 

Extensive experience of the board and the management in the industry

Mr Amit Rajpal and Mr Gaurav Patankar, the co-founders, bring extensive experience from senior roles at distinguished firms in the BFSI sector. Aligned with their vision of utilising a technology-driven, partner-centric approach to empower MSMEs and advance financial inclusion in rural areas, they have strategically assembled a management team of experts with a track record of success in leading financial institutions. The founders have demonstrated their prowess in mobilising substantial resources, securing Rs 235 crore from institutional investors within the inaugural year at Niyogin. Furthermore, the board had approved the issuance of warrants worth Rs 80 crore, of which the company has already received Rs 20 crore in the second quarter of fiscal 2024 and the remaining is expected to be received over the next 18 months. Despite operations being at an early stage and acquisitions of fintech startups, MoneyFront and ISU, the management has maintained a healthy capital structure devoid of debt barring the amount raised in April 2023, providing a strong foundation for future growth. Operations are managed by Mr Tashwinder Singh, the MD and CEO, who brings with him a vast wealth of experience of over 26 years in strategic and operational roles, having held leadership positions in Citigroup, KKR and O3 Capital in the past.   

 

Weaknesses:

Small, albeit steadily increasing scale of operations

ISU’s business expansion relies heavily on growth and outreach of every partner integrated into the platform, thanks to the partnership-centric model. This necessitates dual focus on acquiring new BC partners and retaining the existing ones. Over fiscals 2022 and 2023, the company has successfully onboarded several significant enterprise partners onto the ISU platform, the most recent one being Indian Post Payment Bank in September 2022, and others such as Common Service Centre, NSDL Payments Bank etc. Thus, GTV has grown substantially to Rs 15,023 crore in fiscal 2023 from Rs 6,912 crore in fiscal 2021. It has further grown 85.6% on-year (annualised) to Rs 21,455.7 crore in the first half of fiscal 2024. Nevertheless, the ability to retain existing partners while increasing tie-ups with new partners would remain a key monitorable.

 

In addition, since bulk of revenue from the ISU business is generated through fee per transaction, scale is critical to ensure breakeven and profitability. While the platform is scalable and additional products can be added to drive revenue growth, the company has not faced any major competition so far. Going forward, ability to price commissions appropriately amidst competition, along with increasing scale of operations will be a key monitorable.  

 

The lending business also has a relatively short track record, as operations commenced in fiscal 2018. As on June 30, 2023, the AUM for the lending division amounted to Rs 117 crore. Given that the average tenure for unsecured business loans falls within the range of 12 to 24 months, the loan portfolio has seen limited seasoning.

 

Modest asset quality and earnings profile

As of June 30, 2023, overall delinquencies remain high with 90+ dpd of Rs 15.6 crore (13.3%). However, these delinquencies include a sizeable portfolio from the past, against which the company has FLDG cover of Rs 11.8 crore. Hence, the actual portfolio at risk is lower at an adjusted 90+ dpd of around 3.2%. Nevertheless, CRISIL Ratings notes that collection efficiency[2] remains modest averaging 78% over the 12 months ending June 30, 2023.

 

For the first quarter of fiscal 2024, the lending business reported losses of Rs 2.1 crore, following a loss of Rs 6.4 crore in the previous fiscal. As operations are at an early stage, the earnings profile is constrained by elevated operating expenses, primarily attributed to substantial investments in establishing technology infrastructure and recruiting top-tier professionals. Nevertheless, heavy reliance on technology positions has enabled the company to attain operational efficiency at a faster pace compared to conventional firms. Profitability should improve over the medium term, as company achieves economies of scale.

 

In terms of earnings, revenue from operations in ISU has seen significant growth to Rs 88.7 crore in fiscal 2023 from Rs 42.1 crore in fiscal 2021. Growth in revenue can be attributed to significant increase in volume of transactions. GTV rose by 85.6% (annualised) to Rs 21,455.7 crore, from Rs 15,023.7 crore as on March 31, 2023. It is expected to improve further over the medium term with increasing number of tie-ups with BC partners. However, ISU, on a standalone basis, reported operating losses in fiscal 2023, due to large investments made to upgrade technological infrastructure. Ability to achieve breakeven and attain profitability by limiting incremental cost will be a key monitorable. Nevertheless, operating expenses are high, as the company is in the build-up phase.

[2]Collection efficiency = (Current collections + Overdue collections)/Current billing

Liquidity: Adequate

Asset-liability maturity profile was comfortable as on June 30, 2023, with positive mismatches across buckets up to one year. As on June 30, 2023, NFL had cash and liquid investments of Rs 49.3 crore, against debt repayment of Rs 0.74 crore (between July and September 2023). This corresponds to a liquidity cover of 7.03 times as on June 30, 2023, for three months.

Outlook: Stable

CRISIL Ratings believes NFL will benefit from its experienced promoters and management and maintain healthy capitalisation metrics over the medium term. However, sustainable improvement in asset quality metrics and earnings profile is a key monitorable.

Rating Sensitivity Factors

Upward factors:

• Improvement in operating margin to 12-15% along with steady growth in scale of operations
• Sustenance of healthy capitalisation and gearing metrics
• Significant improvement in asset quality metrics and collection efficiency

 

Downward factors

• Continued operating losses over an extended period
• Weakening of capital profile
• Continued pressure on asset quality metrics resulting in 90+ dpd without adjusting for FLDG, of over 5% on a steady-state basis

About the Company

NFL emerged as an early-stage fintech entity, following the acquisition of M3 Global Finance Limited, a BSE listed non-banking financing company established in 1988, by Information Interface India Pvt Ltd. It was subsequently rebranded as NFL in May 2017.

 

In 2019, NFL acquired Moneyfront, a platform providing wealth advisory and analytics services catering to individuals, MSMEs, and large enterprises. Additionally, in 2020, the company acquired iServeU, a 'Banking as a Service' platform for Niyogin, offering essential banking services to rural individuals.

 

Beginning operations in 2016 within four years in Karnataka, iServeU expanded its footprint to cover all states, with a notable emphasis on Karnataka, Maharashtra, Andhra Pradesh, Gujarat, Rajasthan, Uttar Pradesh, Bihar, Jharkhand, West Bengal, and Assam.

 

Through its credit aggregation platform, NFL offers seamless, entirely digital access to credit for MSMEs via an extensive network of financial professionals, facilitated by product partners such as NBFCs and banks. Presently, the company has integrated approximately 5,083 lending associates who generate inquiries across the country.

Key Financial Indicators: (Consolidated):

As on/for the period ending	Unit	Jun-23	Mar-23	Mar-22	Mar-21
Total assets	Rs crore	377.44	344.68	362.99	368.09
Total assets under management	Rs crore	117.42	91.94	65.49	56.22
Total income	Rs crore	45.54	117.18	107.08	50.63
Profit after tax	Rs crore	(6.64)	(28.39)	(7.60)	(7.42)
Return on average managed assets	%	(7.36)*	(8.02)	(2.08)	(2.4)
90+dpd (excluding write-offs)	%	13.29	16.12	6.03	8.11
Adjusted gearing	Times	0.05	-	-	-

*annualized

Any other information: Not applicable