| Sarvagram Fincare Private Limited | ||||
| 'CRISIL BBB-/Stable' assigned to Non Convertible Debentures | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL BBB-/Stable' rating to Rs 50 crore of non-convertible debentures and has reaffirmed its rating on long-term bank facilities and non-convertible debentures of Sarvagram Fincare Private Limited (Sarvagram Fincare).
The rating is driven by the experience of promoters and top management in rural financing and comfortable capitalization metrics. These strengths are partially offset by the modest scale of operations with limited track record and earnings profile constrained by high operating expenses owing to nascent stage of operations.
Sarvagram Fincare was incorporated in October 2018 and started its operations in June 2019, as household finance company providing suitable credit products to rural households in rural and semi-urban India. The company is the associate company of Sarvagram Solutions Private Limited (Sarvagram Solutions), which was incorporated in August 2019, as a digital platform providing technology solutions to the NBFC arm. |
Analytical Approach Sarvagram Solutions being incorporated (August 2019) after its lending arm Sarvagram Fincare Private Limited (October 2018), currently holds 62% of the total share capital. However, the group plans to fully consolidate the entity over the medium term. Nevertheless, the group will continue to raise equity at the parent level, a part of which will be infused in the lending arm. Sarvagram Solutions currently has very small business, therefore, for the purpose of ratings, the team has evaluated the standalone profile of the lending entity, while keeping into consideration the capital infusion by Sarvagram Solutions Private Limited.
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: Strong experience of promoters and management in rural financing The founders of Sarvagram, Mr Utpal Isser and Mr Sameer Mishra have significant relevant experience complementing the business model of the group. Both of them have been involved in managing rural businesses across financial sector entities including banks. The management team too has strong experience in the rural finance business. Given their significant experience, the management is focused on putting in place sound systems and risk management processes at an early stage itself. The group has invested significantly in analytics capability, underwriting capabilities, and risk analytics. CRISIL believes that the experience of the promoters and management will stand Sarvagram in good stead as it scales up its portfolio.
Comfortable capitalization metrics Capitalisation metrics for the group remain comfortable, supported by regular capital infusions. The group has raised around Rs 101 crores within 2 years of its operations at the parent level, with Rs 76 crore being raised in January 2021. Pursuant to capital infusion, the networth of Sarvagram Solutions stood at Rs 97.41 crore as on March 31, 2022, as against 97 crore as on March 31, 2021 and Rs 24 crore as on March 31, 2020. Of the total capital raised, the parent has infused around Rs 80 crore in the NBFC, i.e. Sarvagram Fincare Limited. Consequently, at standalone level, the company had a networth of Rs 51.86 crore as on March 31, 2022, as against Rs 17 crore as on March 31, 2021 and Rs 9 crore as on March 31, 2020. The gearing metrics also remained comfortable at both consolidated and standalone level at 2.4 time (adjusted for goodwill) and 2.9 times, respectively, as on March 31, 2022.
Capitalization metrics are expected to remain comfortable in the medium term with gearing metrics not expected to go beyond 3.5 times on on-book basis.
Weakness: Modest scale of operations with limited track record Given the nascent stage of operations, the assets under management (AUM) for the company was modest at Rs 171 crore as on March 31, 2022, as compared to Rs 39 crore as on March 31, 2021. The company currently has five credit products under its portfolio, i.e. business loans (28%), farm loans (32%), personal loans (25%), home loans (6%) and gold loans (8%). The company offer these credit products to semi-urban/rural households. The company follows brick and mortar business model for the purpose of its lead generation and currently has 50 branches as on March 31, 2022, as compared to 9 as of March 31, 2021, primarily in the states of Gujarat and Maharashtra. The company has also started its operations in Rajasthan and Karnataka and plans to further expand its operations in the given states.
Given the significant experience of management, the management is focused on putting in place sound systems and risk management processes at an early stage itself. For the purpose of underwriting, Sarvagram Fincare considers the entire household income and expenses. In addition, the focus is also on secured lending. As of March 31, 2022, 65% of the company’s AUM was secured by mortgage. Additionally, the company also secures it portfolio through stock hypothecation. Including the stock hypothecation, the secured portfolio would constitute 80% of the total portfolio.
With the small scale of operations, the company has managed its collection efficiency[1] well with the same dropping to 83% in April 2020 i.e. immediately post Lockdown which then improved to over 98% in September 2020, i.e. post the moratorium period and continued to remain at the similar levels. Even during the second-wave of Covid-19, the collections slightly dropped to 91% in April 2021, however, the same increased to 95% in May 2021 and remained in the range of 95%-100%. Consequently, the asset quality metrics in terms of 90+ dpd remained comfortable at 1.3% as on March 31, 2022 as against 1.1% as on March 31, 2021 and nil in March 2020. The increase in 90+ dpd levels was on account of exposure to micro-finance and SME segments, to which the company had offered loans before the pandemic. The company has now stopped lending to the affected sectors within the SME segment. Additionally, the company has also not done any restructuring as per the RBI Covid resolution framework.
Nevertheless, with just 2 years of operations, the portfolio lacks seasoning and the ability of the company to manage its asset quality as the portfolio scales up remains to be seen and would remain a key monitorable.
Earnings profile constrained by high operating expenses The earnings profile is currently constrained amid high operating costs given the branch expansion and technological investments being undertaken given the nascent stage of operations. SarvaGram Fincare reported a loss of Rs 20.3 crore for the period ending March 31, 2022, as against loss of Rs 4.9 crore for fiscal 2021. High employee costs formed the bulk of the operating expenses, due to increase its branch operations and consequent hiring of sales officer, branch managers and credit managers. Operating costs are expected to reduce over the medium term as the newly opened branches achieve scale, and employee costs normalise even as the company continues to increase its network. With a branch typically turning profitable by around 4-5 months at operational level, operating efficiencies would flow in only over the medium term. Nevertheless, the central underwriting model will support operating leverage.
Furthermore, the high-yield portfolio with IRR ranging 20-30% across all segments supports earnings profile. The company is also planning to start off-book lending in near term.
As the portfolio scales up and gearing increases, ability to raise resources at competitive costs will be important. Additionally, ability to manage asset quality, and therefore, credit costs will be a key determinant of profitability over the medium term. [1] Collection efficiency = Total collections excluding prepayment divided by current billing |
Liquidity: Adequate Sarvagram Fincare’s asset-liability maturity profile was comfortable as on March 31, 2022, with positive mismatches across buckets up to 1 year. As on April 30, 2022, the company had cash and liquid investments of Rs 31 crores covering 6 months of debt repayments (principal + interest) from May-22 to Oct-22. |
Outlook: Stable CRISIL Ratings believes that Sarvagram will benefit from its experienced promoters and management and will maintain its healthy capitalisation metrics over the medium term. |
Rating Sensitivity factors Upward factors: * Sustainable return to profitability without any deterioration in asset quality metrics as the portfolio scales up * Capitalisation metrics remaining strong with adjusted gearing remaining below 3 times Downward factors: * Any adverse movement in asset quality with adjusted 90+ dpd (after adding back 12 months write-offs) inching beyond 5% on a steady state basis * Company continuing to report losses at PBT (profit before tax) level over the medium term * Moderation in capitalisation metrics with a significant jump in gearing while scaling up the portfolio. |
About the Company Sarvagram Fincare Private Limited (SFPL) is a Maharashtra-based non-deposit non-systemically important NBFC, which started its operations in June 2019 as household finance company providing suitable credit products to rural households in rural and semi-urban India. The company is the subsidiary of Sarvagram Solutions Private Limited (SSPL), which is a digital platform providing technology solutions to the NBFC arm. As on March 31, 2022, SSPL held 62% of ownership of SFPL.
Sarvagram Fincare currently has five credit products under its portfolio, i.e. business loans (28%), farm loans (32%), personal loans (25%), home loans (6%) and gold loans (8%). The company offer these credit products to semi-urban/rural households.
The company had an AUM of Rs 171 crore as on March 31, 2022, of which, 80% was the secured book (65% by mortgage and 15% by stock hypothecation). |
Key Financial Indicators
*All figures for Mar-22 are as per provisional financials |
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)
*yet to be issued |
Annexure – List of entities consolidated
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| 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 30-Jun-2022 in line with the lender-wise facility details as on 06-Dec-2021 received from the rated entity.
Criteria Details
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