Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB-/Stable’ rating to Rs.20 crore non-convertible debentures of Riviera Investors Private Limited (Riviera) and reaffirmed its rating on the existing debt instruments and bank facilities at ‘CRISIL BBB-/Stable/CRISIL A3+’.

 

The rating continues to reflect Riviera’s healthy capitalisation metrics and easily scalable business aided by technology-based sourcing. These strengths are partially offset by the limited track record of operations and the inherent vulnerability of asset quality owing to the high share of unsecured loans, which in turn could impact the company's profitability metrics.

Analytical Approach

CRISIL Ratings has evaluated the credit risk profile of both Riviera and its parent, Indifi Technologies Pvt Ltd (Indifi), collectively referred to as Indifi group.

Key Rating Drivers & Detailed Description

Strengths:

Healthy capitalisation

Capitalisation metrics are comfortable supported by regular capital infusion. The group has raised about Rs 390 crore of equity since inception from a diverse set of sources such as private equity players, promoters and high networth individuals (HNIs) with Rs 142 crore being raised inFY 2022. While the group has been reporting losses amidst the nascent stage of operations, the networth remained comfortable at Rs 245 crore (including goodwill) while Riviera reported a net worth of Rs 151.8 crore and Tier I ratio of 29.3% as on March 31, 2022. Adjusted gearing too was comfortable at 1.5 times and 2.4 times for the group and Riviera levels, respectively, as on March 31, 2022, and is expected to remain under 3.5 times at a standalone level on a steady state basis. CRISIL expects gearing to be maintained supported by regular capital raise, thus providing a cushion against asset-side risks.

 

Easily scalable business aided by technology-based sourcing

The group commenced operations as a market place with the company Indifi from fiscal 2015 onwards. However, the portfolio of its own non-banking finance company (NBFC), Riviera started on-balance sheet lending only in fiscal 2017. The group has adopted a branchless business model with most of the operations from sourcing to evaluation happening digitally. The group’s business model involves partnering with anchors for segment specific approach and also direct online lending, where sourcing through anchor partners constitutes a significant chunk of the portfolio. As a result, the assets under management (AUM) has grown to Rs 775 crore as on March 31, 2022 from Rs 442 crore as on March 31, 2021, at the group level (Rs 458 crore and Rs 305.5 crore as on March 31, 2022 and March 31, 2021, respectively, for Riviera).

 

The promoter’s background, an experienced management and relationships in the market, along with an ability to raise capital should help in scaling up of portfolio going forward. While growth momentum is expected to continue over the medium term, the group will remain a modest player in the overall financial ecosystem.

 

Weakness

Limited track record of operations

Given the nascent stage of operations, the seasoning in the book is limited and asset quality performance would need to be monitored over a longer period. Further, the business model of the group is based on a digital platform with a proprietary model for evaluating the credit profile of potential borrowers. The model is refined continuously based on the performance of the portfolio and feedback from the collections and credit teams. However, such a technology based lending model is at a very nascent stage in India. Given the fact that a lot of players are entering this space with similar type of model, the ability to significantly scale up the portfolio amidst increasing competition, as well as manage credit costs and operating expenses and therefore profitability needs to be seen.

 

Inherent vulnerability of asset quality leading to sharp increases; loan book lacks seasoning

Given the focus on unsecured business loans, asset quality is susceptible to risks associated with weak credit profiles of borrowers. The Indifi group’s AUM primarily consists of unsecured small and medium enterprises (SME) loans. The SME segment is vulnerable to cash flow cyclicality, which could result in potential slippages, and given the unsecured nature of the loans, recovery could also be limited.

 

The company had been able to manage it’s collections post the second-wave of Covid-19. While the collection efficiency marginally dropped to 91% in May 2021 on account of second wave of Covid -19, however, the same started improving June onwards and reached 95% in June 2021 and remained in the range of 95%-99% across months. Consequently, the adjusted 90+ dpd and 90+dpd improved significantly in fiscal 2022 to 6.6% from 11.1% in fiscal 2021and2.6%  from 9.1% in FY 2021, respectively, at consolidated level and to 9.5 % and 2.7% (9.7% and 7.8% as on 31st Mar 2021), respectively, at standalone level. Indifi group has also restructured portfolio of around 3% of its own-book portfolio till Mar-22 and performance of this portfolio remains a key monitorable.

 

The group has put in place strong risk management systems and processes. Given that the lending decision is primarily based on the output from the proprietary credit risk model, each application goes through a manual review before the final disbursement. Further, the group makes timely upgrades to the model based on the performance of the portfolio/collections experience. In addition, having first charge over the funds getting transferred from anchor partner to the borrower as a result of presence of escrow mechanism agreement with the partner also provides additional comfort. As on March 31, 2022, in around 40% of portfolio, the group had escrow control over funds to be transferred from the anchor partner to the borrower.

 

Nevertheless, asset quality remains vulnerable to sharp increases given the credit profile of the underlying borrower segment. This along with limited seasoning in the portfolio could lead to potential slippages in future. Therefore, the ability to maintain asset quality while scaling up the loan portfolio remains a key monitorable.

 

Constrained earnings profile

Owing to nascent stage of operations, operating expenses of the Indifi group, while coming down, have remained high given the investment in technological advancements and appointment of several employees at the senior management level. Consequently, the group has reported losses since inception at a consolidated level. In fiscal 2022 too, the group reported a net loss of Rs 32.8 crore (net loss of Rs 36.7 crore in fiscal 2020). CRISIL notes that some of the expenses are not recurring and linked to investment in technology. On a standalone basis, Riviera has been reporting profits since fiscal 2018 and in fiscal 2022, it reported a PAT of Rs 0.1 crore (Rs 0.2 crore in fiscal 2021). The Indifi group continues to invest in technology, ramp up their existing credit model and strengthen the employee base, which is expected to continue to keep the employee costs elevated. Further, inherent vulnerability of underlying borrower segment leading to high credit cost can also have a negative impact on the earnings profile due to stringent provisioning policy of writing off all loans, which have exceeded 270+ dpd.

 

Therefore, given the business model of the group where yields are high and technology-led underwriting should result in operational efficiencies as the book grows, earnings profile hinges upon the ability to reduce operating expenses and manage credit costs. In the near term, credit cost and operating expenses will be the key determinant of the profitability and hence ability to manage the same remains a key monitorable.

Liquidity: Adequate

The ALM profile is comfortable with no cumulative negative mismatches upto one year bucket even after excluding line of credit committed from other institutions as on March 31, 2022. The liquidity position is comfortable with the group having a 4 months’ cover of debt repayments (including interest expense and without giving the benefit of collections). The company has total debt obligations (including interest expense) of Rs 108 crore from June 2022 to September 2022 against which it had Rs 113 crore of liquidity as on May 31, 2022 at the group level.

Outlook: Stable

CRISIL Ratings believes the group will benefit from its experienced promoters and management and will maintain its healthy capitalisation metrics over the medium term. However, asset quality performance will be demonstrated only over time and profitability is also likely to remain subdued with continued high operational expenditure.

Rating Sensitivity Factors

Upward factors

• Ramp up in operations with the group reporting profits along with continued comfortable capitalisation metrics
• Sustainable improvement in asset quality with 90+ dpd (including write-offs) remaining under 3.5% as the portfolio scales up

 

Downward factors

• Any adverse movement in asset quality with 90+dpd (including write-offs) remaining over 9% over the near to medium term
• Group continuing to report losses at PBT (profit before tax) level at consolidated level
• Moderation in capitalisation metrics with a significant jump in gearing while scaling up the portfolio

About the Company

Riviera is a wholly-owned NBFC of Indifi that was set up in 2015 as an online marketplace connecting (SMEs) with lenders. Indifi houses the proprietary lending model, evaluation from which leads to a lending decision. On the platform, the respective lenders who are affiliated with the company, have provided some additional parameters, which are looked at while deciding upon the eligibility criteria of the borrowers.

 

Indifi acquired Riviera in fiscal 2017. The NBFC sources its loans from the ‘Indifi platform’ and uses Indifi’s proprietary lending model for the evaluation of the credit profile of the customers. The lending principle is based on credit evaluation using a proprietary scoring model with minimum human interface and therefore, with a significantly faster turnaround time. The group is targeting the niche segment of low ticket size, shorter tenure unsecured loans.

 

For fiscal 2022, Riviera reported a profit after tax of Rs 0.1 crore on a total income of Rs 81 crore compared to Rs 0.2 crore and Rs 59 crore, respectively, in fiscal 2021. On a consolidated basis, the group reported a net loss of Rs 32.8 crore on a total income of Rs 105.8 crore in fiscal 2022.

Key Financial Indicators: (Consolidated)

As on/for the period ending	Unit	Mar-22	Mar-21	Mar-20
Total assets	Rs crore	635	388	345
Total assets under management (incl. partner book)	Rs crore	775	442	358
Total income	Rs crore	106	66	61
Profit after tax	Rs crore	-32.8	-36.7	-32.2
90+ dpd	%	2.6	9.1	2.7
Adjusted 90+ dpd (after adding back last 12 months write-offs)	%	6.6	11.1	6.7
On-book gearing	Times	1.4	1.6	0.8
Adjusted gearing**	Times	1.5	1.7	0.9
Return on managed assets	%	Negative	Negative	Negative

***on-book borrowings + off book (securitisation) divided by networth

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 outstanding with outlook
INE0GOL07020	Non-convertible Debenture	31-Aug-21	14.20	25-Aug-23	20	Complex	CRISIL BBB-/Stable
INE0GOL07012	Non-convertible Debenture	13-May-2021	14.35	13-May-23	20	Simple	CRISIL BBB-/Stable
NA.	Non-convertible Debenture*	NA.	NA.	NA.	20	Simple	CRISIL BBB-/Stable
NA.	Proposed Long Term Bank Loan Facility	NA.	NA.	NA.	75	NA	CRISIL BBB-/Stable
NA.	Long Term Bank Facility 1	NA.	NA.	28-Feb-2022	25	NA	CRISIL BBB-/Stable
NA.	Long Term Bank Facility 2	NA.	NA.	10-Nov-2023	15	NA	CRISIL BBB-/Stable
NA.	Long Term Bank Facility 3	NA.	NA.	31-Oct-2025	35	NA	CRISIL BBB-/Stable
NA.	Commercial Paper	NA.	NA.	7-365 days	30	Simple	CRISIL A3+

*Yet to be issued