Key Rating Drivers & Detailed Description

Strengths:

• Credit support available in the structure
  • Cash collateral of Rs 2.13 crore (7.3% of the pool principal) provides credit support to Series A1 PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating Rs 7.51 crore for Series A1 PTCs (assuming zero prepayments and zero collection shortfalls) – including Rs 2.61 crore of principal overcollateralisation (9.0% of initial pool principal) and Rs 0.87 crore of equity tranche PTC principal (3.0% of initial pool principal) for Series A1 PTCs.

• Seasoning of contracts in the pool
  • The contracts in the pool have shown good repayment track record, with 98.4% of the POS arising out of contracts that have exhibited no instance of delinquency prior to securitisation. The weighted average seasoning of the pool is 8.2 months (as measured from first EMI date to pool cut-off date) and it has amortised by 21.5% prior to securitisation.

Weakness:

• Borrower concentration in the pool
  • The pool comprises of only 295 loans and is exposed to risks arising out of borrower concentration, with top 10 borrowers in the pool accounting for 7.5% of the initial pool principal. Lower granularity in loan pools increases the possibility for idiosyncratic risks compared to a highly granular pool.

• Risks inherent to unsecured SME financing
  • Borrower cash flows in the unsecured SME segment are vulnerable to adverse impacts on account of rising energy and input costs and a moderation in demand on account of an increased inflation and interest rate scenario. These macroeconomic headwinds may hamper the pool’s collection performance.
• Basis risk
  • There is basis risk in the transaction as the liability side PTC coupon rated is floating and linked to the RBI repo rate whereas the asset side pool comprises of solely fixed rate loans.

Rating Sensitivity factors

Upward

• Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 2.75 times the estimated base case shortfalls on the residual cash flows of the pool.
• A sharp upgrade in rating of the servicer/originator

Downward

• Credit enhancement (based on both internal and external credit enhancements) falling below 2.10 times the estimated base case shortfalls.
• A sharp downgrade in rating of the servicer/originator
• Non-adherence to the key transaction terms envisaged at the time of the rating

These aspects have been factored by CRISIL Ratings in its rating analysis.

Additional disclosures for Provisional ratings:

The provisional rating is contingent upon execution of the following documents:

• Trust deed
• Assignment agreement
• Accounts agreement
• Servicing agreement
• Power of attorney
• Information memorandum
• Legal opinion
• Trustee letter
• Representations and warranties letter
• CA certificate

Additional documents executed for the transaction, if any, should also be provided. The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed within 90 days from the date of issuance of the instrument.

The final rating assigned post conversion shall be consistent with the available documents. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days.

Rating that would have been assigned in absence of the pending steps/ documentation: 

In the absence of pending documentation considered while assigning provisional rating as mentioned above, CRISIL Ratings would not have assigned any rating.

Risks associated with provisional nature of credit rating:

A prefix of 'Provisional' to the rating symbol indicates that the rating is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable. In case the documents received and/or completion of steps deviates significantly from the expectations, CRISIL Ratings may take an appropriate action including placing the rating on watch or a rating/outlook change, depending on status of progress on a case-to-case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio.

About the Pool

The securitisation transaction is backed by a pool of unsecured business loan receivables. The pool has weighted average net seasoning of 8.2 monthly instalments. The pool has high borrower concentration with share of top 10 borrowers at 7.5% of the overall pool principal. Average ticket size is Rs 12.5 lakh with weighted average interest rate of 19.7%. All the contracts in the pool were current as on pool cut-off date. CRISIL Ratings has adequately factored all these aspects in its rating analysis.

Counterparty details

About the Originator

UGRO is a systemically important NBFC engaged in financing secured and unsecured loans to MSMEs. It was incorporated in 1993 as Chokhani Securities Limited and was acquired and renamed as UGRO Capital Limited in 2018 by Mr. Shachindra Nath (Executive Chairman and Managing Director). The company is publicly listed on the Bombay Stock Exchange since 1995 and got listed on the National Stock Exchange in August 2021. Mr. Shachindra Nath is supported by seasoned key management personnel each having expertise of over a decade in their respective functional domains.

The company has raised capital from marquee private equity investors namely Newquest Asia Investments, Clearsky Investment holdings (ADV), Samena and DBZ Cyprus (PAG) who invested in the initial phase of UGRO’s evolution along with Mr. Shachindra Nath. The four investors together hold 68% as on March 31, 2022.

The company commenced its operation in January 2019 and had an AUM of Rs 2,969 crore as on March 31, 2022, of which Rs 2,491 crore was on-book. The company has diversified presence across 11 states with 91 branches as on March 31, 2022, with none of the states contributing more than 18% of the AUM as on March 31, 2022.

The company reported a PAT of Rs 15 crore on the total income (net of interest expense) of Rs 177 crore for the fiscal 2022 as against Rs 29 crore and Rs 109 crore, respectively, for the previous fiscal.

Past rated pools

This is the third securitisation transaction originated by Ugro that is being rated by CRISIL Ratings.

Key Financial Indicators

*Gearing is adjusted for the intangible assets on the balance sheet.

Annexure - Details of Instrument(s)

# Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option

& Series A1 PTC holders are entitled to receive timely interest on a monthly basis, while the principal payment is promised on an ultimate basis.

^10.65% p.a. payable monthly (starting coupon), linked to Repo Rate + spread of 5.25%, to be reset every 90 days from the date of investment

*Additional credit support includes Rs. 7.51 crore in form of scheduled cash flow subordination (assuming zero prepayments) – including Rs 2.61 crore of principal overcollateralization and Rs 0.87 crore of equity tranche PTC principal.

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