Key Rating Drivers & Detailed Description
Strengths:
* Extensive experience of board members and management in lending space
Yog Loan’s board members and senior management have immense amount of experience in the NBFC lending industry and banking space. Mr. Unnikrishnan, MD & CEO, has more than 25 years of experience in NBFC industry. The company’s board of directors comprises experienced professionals from different fields such as banking, finance, asset management and administration.
The company’s senior management team is also well-experienced, Mr. Rajesh Kumar, K (EVP & Company Secretary), has industrial experience of more than 20 years in the fields of corporate laws, strategic management, and policy matters. Prior to joining with Yog Loans, he was the General Manager & Company Secretary of Manappuram Finance Ltd. He had worked with major business houses in Kerala such as, Kuttukaran Group, Popular Motors group, Malabar Gold and Manappuram Group in different capacities. Mr. Prasad, Chief Financial Officer, has ~12 years of experience in accounts, finance, and taxation in various sectors. He has worked with various companies like Manappuram Finance Ltd and Manappuram Jewellers Ltd and Kalyan Jewellers India (Pvt) Ltd. CRISIL believes that the company is expected to benefit from the expertise of the board and an experienced management team
* Adequate capital position for its current scale of operations
Yog Loans capital position is adequate in relation to its scale and nature of operation. As of March 31, 2022, the company has networth of Rs 74.5 crore and comfortable gearing at 4.5 times as against networth of Rs 69.5 crore and gearing of 4.7 times as on March 31, 2021. Furthermore, as gold loan segment contributes 72% of assets under management, the lower asset side risk (security of gold, which is liquid and is in the lender's possession), supports capitalisation. Since Fiscal 2014, the promoters have infused Rs 43 crore in the company. The last capital infusion of Rs 2.5 lakhs was done in Fiscal 2020. CRISIL Ratings believes Yog Loans will remain adequately capitalised with gearing also remaining at comfortable level over the medium term.
* Improving asset quality in gold loan business
Yog Loans in the past has been able to maintain sound asset quality particularly in gold loan portfolio backed by adequate risk management practices. The company’s 90+ dpd in terms of gold loan has remained in the range of 1.9-2.7% in the pre-pandemic period. However, on account of pandemic given the company couldn’t hold substantial auctions during the lockdown period, the 90+ dpd for the gold loan portfolio deteriorated and stood at 5.9% in fiscal 2022, However, with improvement in economic conditions, the management was able to increase number of auctions which has helped them recover dues from non-performing accounts. As on May 31, 2022, the 90+ dpd in gold loan segment stood comfortable at 0.94%. In the past, the company has been proactive enough in its auction process. The company starts issuing the notice during the existing tenor of the loan (in case if there are no interest repayments). Post the completion of the tenor, the company initiates the overdue recognition and in line with RBI guidelines, initiates auction process. CRISIL therefore believes that given the systems and risk management practices, the company will be able to maintain sound asset quality in the gold loan business.
Weakness:
* Moderate scale of operations with geographic concentration
Yog Loans operations have grown significantly over the past four years, however in fiscal 2022 on account of second wave of pandemic, the overall assets under management (AUM) of the company registered marginal degrowth and stood at Rs 338.8 crore as on March 31, 2022 (Rs 350.9 crore as on March 31, 2021). This comprises a wide range of asset classes including gold loans (72%), vehicle loans (22%) and small and medium enterprise (SME) business loans (5%). The company has plans to further increase its vehicle finance portfolio, however they will continue to maintain gold loan as major proportion of loan portfolio going forward.
Additionally, operations are geographically concentrated in 3 states in southern region of India, Kerala, Karnataka, and Tamil Nadu. Kerala dominates the portfolio with over 70% followed by Karnataka (18%) and Tamil Nadu (11%). Even though the company’s operations are concentrated in southern region of India, there is high growth potential to tap other geographies as far as gold loans are concerned. The ability of the company to scale up its loan book in the current environment across geographies while further improving its asset quality will remain key monitorable.
* Asset quality concerns in the non-gold loan segments
As on March 31, 2022, the 90+ dpd within non-gold segments (comprises of MSME and Vehicle finance) stood at 28.9% as on March 31, 2022, as against 11.2% as on March 31, 2021. Furthermore, as part of one-time restructuring, the company had restructured accounts under non-gold segment. As on March 31, 2022, the outstanding restructured account amounts to Rs 5 crore and these accounts are standard and performing well. In absolute terms, the 90+ dpd for MSME loans stood for fiscal 2022 improved to Rs 3.58 crore as compared to Rs 4.98 crore in previous fiscal. The asset quality challenges faced in MSME segment is primarily due to some of the legacy accounts. The management proposes to maintain overall MSME portfolio at about 10% of the overall portfolio due to asset quality concerns faced in this segment. With regard to vehicle finance portfolio, the 90+ dpd has marginally deteriorated to 5.7% in fiscal 2022 as compared to 4.8% in previous fiscal on account of second wave of pandemic. The improvement of asset quality performance in this segment will be critical for the rating, given the management plans to grow this portfolio over the medium term.
* Moderate resource profile
The company’s resource profile consists of Sub Debt (30%), NCDs (27%), term loans (24%), and bank overdrafts (20%) of the total borrowings as on March 31, 2022. The cost of borrowing of the company as on March 31, 2022, stood at 10.3% as against 11.0% in Fiscal 2021. During period ended March 31, 2022, the company was able to raise incremental funds of Rs 15 crore in the form of term loans. Resource profile of the company continues to remain majorly dependent on the privately placed NCDs and subordinated bonds. However, with the ability of the company to diversify its borrowing profile and increase the share of bank funding to fund its future growth and reduce overall cost of borrowing while it scales up in size will remain key monitorable.