Detailed Rationale CRISIL Ratings has reaffirmed its rating on the bank loan facilities and non convertible debentures Shapoorji Pallonji Finance Pvt Ltd (SPFPL) at ‘CRISIL A-/Stable’.
CRISIL Ratings has withdrawn its rating on Rs.500 crore of proposed bank loan facilities at the company’s request and has also withdrawn its rating on the Rs.75 crore of Non-Convertible Debentures (see the 'Annexure - Details of Rating Withdrawn' for details) on receipt of independent confirmation that these instruments are fully redeemed and at the request of the company, in line with its withdrawal policy.
The ratings on debt instruments of SPFPL continue to factor in support from the promoters and promoter group companies. The ratings on SPFPL also factors in the company's comfortable capitalization and its small scale of operations.
The company now plans to focus on the supply chain financing segment in order to increase the granularity in the book and exit the wholesale lending segment. Consequently, the current loan book will run down gradually. The company has also partnered with a few banks to offer this product via co-lending arrangement and has developed a proprietary technology enabled platform to facilitate end to end digital lending process. Nevertheless, ability to grow the book remains a key rating monitorable. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has analysed the standalone business and financial risk profile of SPFPL and factored in benefit of support that it is expected to receive from promoters of SP group, if the need arises. |
Key Rating Drivers & Detailed Description Strengths: Comfortable capitalisation SPFPL’s net worth stood at Rs 477 crores as on March 31, 2023 up from Rs 457 crores as on March 31, 2022. In fiscal 2018, SPFPL raised Rs 239 crores of capital including Rs 132 crores raised via rights issue in March 2018 from both its shareholders – Rs 67 crore from SPCPL and Rs 65 crore from SSG group; the latter became a shareholder of SPFPL in March 2018. Later, in fiscal 2021 and fiscal 2023, SSG sold its stake in the company to promoters and thereby as on June 30, 2023, the SP group held 53.125% stake in SPFPL while remaining stake of 46.875% is held by promoters of SP Group through SMCM Holdings Private Limited.
While the gearing was low at 0.2 time as on March 31, 2023 (0.6 time as on March 31, 2022), it could increase gradually going forward but is not expected to exceed beyond 3 times over the medium term to long term.
Expectation of support from promoters and promoter group companies SPFPL is strategically important to promoters of SP group as it is the only financial services company in the group. Further, promoters have identified financial services as a key focus area and plan to expand its presence in this space. SPFPL receives significant business, financial, and managerial support from the group. Mr. Shapoorji Pallonji Mistry is also on SPFPL’s board. Promoters, through SP group and promoter companies are expected to maintain minimum 51% shareholding in the company and maintain management and board control. Further, they are expected to provide need-based capital as and when required. The shared brand name with other businesses of the promoters also creates a high moral obligation to support SPFPL, if needed
Weakness: Small scale of operations Though SPFPL was incorporated in 1994, it was a dormant entity until 2016. The company started it operations with presence in real estate lending, corporate lending, & vendor financing segments. The overall loan book was small and stood at Rs 586 crore as on March 31, 2023 (Rs 498 crore as on March 31, 2022, Rs 749 crore as on March 31, 2021). Real estate book formed 51% of the loan book followed by corporate loan book at 47% and supply chain financing at 2% as on March 31, 2023.
The company has now planned to exit the wholesale lending business and focus on supply chain financing business to better manage the risk and asset - liability profile along with the increase in the granularity in the book. Consequently, the current wholesale loan book will run down gradually. The company has developed a proprietary technology enabled platform to facilitate end to end digital lending process and has partnered with few banks to offer this product via co-lending arrangement.
Nevertheless, the current loan book is chunky and thereby the company is exposed to concentration risks and vulnerability to economic stress inherent in a wholesale lending business model. As on March 31, 2023, the top 10 exposures formed ~48% of the overall loan book. Gross Stage 3 assets (GS3) witnessed inch up in fiscal 2023 and stood at 3.35% as on March 31, 2023 as against NIL as on March 31, 2022. However, recoveries were made in full in all the GS3 accounts subsequently.
Total assets stood at Rs 599 crores as on March 31, 2023 as compared to Rs 733 crores as on March 31, 2022. The decline in assets was majorly due to running down of the book and shift in business strategy from wholesale financing to supply chain financing which resulted in lower investments and cash and cash equivalents.
The ability to scale up operations and manage asset quality through economic cycles will be key rating monitorable. |
Liquidity: Adequate SPFPL has maintained positive asset-liability maturity gaps in all buckets up to one year as of March 31, 2023. As on July 15, 2023, the company had no commercial papers outstanding and had debt repayment of Rs 23 crores till December 31, 2023. Against this, liquidity is available in the form of cash and bank balance, liquid investments and unutilized bank lines (~Rs 112 crore) as on same date. The company also benefits from being a part of the SP group, although the company hasn’t required any liquidity support from the group since inception. |
Outlook: Stable CRISIL Ratings believes SPFPL will continue to benefit over the medium term from support from promoters and promoter group companies. SPFPL will maintain comfortable capitalization. |
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About the Company The SP group is a diversified conglomerate with interests in construction, design and building, and engineering, procurement and construction, among others. The group has over 60,000 employees in India and abroad.
SPFPL is the financial services arm of the SP group. It was incorporated in 1994 and originally received a non-banking financial company license in 1994. The company did not have any significant operations until a few years back. In recent years, the company was engaged in corporate structured lending with a focus on providing innovative and structured debt solutions to corporates including financing to the real estate sector, vendor financing, promoter funding, loans against shares, and other structured corporate loans. However, the company now plans to cease these product offerings and focus on supply chain financing product. As on June 30, 2023, SP group & company held by promoters of SP Group held 100% in SPFPL.
In fiscal 2023, the company reported a PAT of Rs 21 crore and total income (net of interest expense) of Rs 72 crore as against PAT of Rs 41 crore and total income (net of interest expense) of Rs 106 crore in fiscal 2022. The profitability in fiscal 2023 was impacted by lower interest income and elevated level of operating expenses linked to tech enabled development of supply chain financing business. |
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Any other information: Not applicable |
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Annexure - Details of Instrument(s)
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