Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB-/Stable’ rating to the long-term bank facilities of Yogakshemam Loans Limited (Yog Loans). The rating continues to reflect the extensive experience of management in lending space, adequate capitalisation for its current scale of operations, improving asset quality. These strengths are partially offset by moderate scale of operations with geographic concentration, moderate resource profile and asset quality concerns in non-gold loan segments.

 

In terms of scale of operations, the company has registered negative y-o-y growth of about 3.4% with assets under management (AUM) reducing to Rs 338.8 crore as of March 2022 from Rs 350.9 crore as of March 2021. The decline in AUM can be attributed towards company’s decision to focus on conducting auctions and recoveries from overdue accounts. Since the company largely operates out of Kerala, it faced significant impact due to state and local level lockdowns. The asset quality as reflected in 90+ dpd increased to around 9.5% as on June 30, 2021 (from 6.2% as on March 31, 2021). However, with gradual opening up of lockdown, the company started to hold auction process which resulted in recovery from NPA accounts which helped the company improved its NPA position. As on March 31, 2022, the 90+ improved to 7.0% which then further improved to 4.0% as of May 31, 2022. The ability of the company to further monitor and improve it asset quality performance will be monitorable.

 

In terms of profitability, the average return on assets for Yog Loans for the past 3 years stood comfortable at 1.9%. The earnings profile was slightly impacted on account of higher provisions due to increase in GNPA levels. However, since the company has been able to recover overdues and has witnessed improvement in 90+ dpd, CRISIL Ratings expects credit cost to improve from current levels. However, the scaling up of business and simultaneously improving operating expenses will remain key monitorable

Analytical Approach

For arriving at the ratings, CRISIL Ratings has evaluated the standalone business and financial risk profile of Yog Loans.

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.

Liquidity: Adequate

Yog Loans has adequate liquidity buffer to cover total debt obligation and operating expenses in the coming months. As on May 31, 2022, Yog Loans had liquidity of Rs 20.7 crore (Rs 7.5 crore of cash and bank balance and Rs 13.2 crore of unutilised bank lines in form of cash credit/working capital loan). Against this, total debt obligation (including operating expense) was around Rs 36.6 crore until August 2022. The liquidity cover (assuming 50% collections) for the company stood at 4.7 times for three months. In terms of ALM profile, it has remained comfortable with positive cumulative mismatches till 3 months and 6 months. This is because majority of Yog Loans portfolio is towards gold loans which are short term in nature.

Outlook: Stable

CRISIL Ratings believes that Yog Loans will continue to benefit from the experience of its management team, maintain its adequate capital position

Rating Sensitivity factors

Upward factors:

• Ability to scale up the loan book and enhance geographic diversity
• Improvement in asset quality of non-gold loan segment
• Infusion of equity capital while maintaining gearing at less than 4.5 times

Downward factors:

• Deterioration in asset quality resulting in increased provisioning requirement leading to pressure on profitability
• Stress in capitalisation with gearing increasing and remaining above 6 times

About the Company

Yogakshemam Loans Ltd (formerly Yogakshemam Kuries & Loans Private Limited) was incorporated on February 13, 1991. The company became an NBFC in the year 2000 by registering with the Reserve Bank of India.  The Company was originally promoted by Mr. N D Narayanan, Chairman with an objective of doing lending against gold and other financial products. In the year 2015, the promoters joined hands with Mr. Unnikrishnan, a chartered accountant by qualification & a former MD of Manappuram Finance Ltd and Mr. Ramachandran, a chartered accountant by qualification & the CEO of Choppies Group. They have jointly expanded the capital base of the company to broad base the products offerings and to go for spatial expansion outside Kerala. Mr. Unnikrishnan and Mr. Ramachandran hold stake of about 17.4% and 22.2%, respectively, as on March 31, 2022.

 

The Company has been mainly operating in the gold loan space and to a limited extent in business support loan for small and medium enterprises and vehicle and term loans to small and medium enterprises. The company focuses on gold loans, which comprised 72% of the overall portfolio as on March 31, 2022, followed by vehicle loans (22%) and MSME loans (5%). The operations are extended across three states but remain concentrated in Kerala (70%), followed by Karnataka (18%) and Tamil Nadu (11%).

Key Financial Indicators

As on/for the quarter/for the year ended	Unit	Mar-22#	44256
Total assets	Rs crore	389	410
Total income	Rs crore	79	75
Profit after tax	Rs crore	5.4	9.7
90+ dpd	%	7	6.2
Gross NPA	%	2.1	1.9
Adjusted gearing	Times	4.1	4.7
Return on assets	%	1.4	2.6

#Provisonal numbers

Any other information: Not applicable