| Asirvad Microfinance Limited | ||||||||||||||||||||||||||||||
| 'CRISIL AA-/CRISIL PPMLD AA- r/Stable' assigned to debt instruments | ||||||||||||||||||||||||||||||
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| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has assigned its 'CRISIL AA-/CRISIL PPMLD AA-r/Stable' ratings to the non-convertible debenture, subordinated debt and long term principal protected market linked debentures of Asirvad Microfinance Limited (Asirvad) and has reaffirmed its 'CRISIL AA-/CRISIL PPMLD AA-r/Stable/CRISIL A1+' ratings on the company’s bank facilities and outstanding debt instruments.
CRISIL Ratings has withdrawn its rating on non-convertible debentures of Rs 10 crore (see the annexure, 'Details of rating withdrawn', for details) on receipt of independent confirmation that these instruments are fully redeemed, in line with its withdrawal policy.
The ratings centrally factor in strong management and financial support from Manappuram Finance Ltd (MAFIL; rated 'CRISIL AA/Stable/CRISIL A1+'), and Asirvad’s earnings profile and its adequate capital position. These strengths are partially offset by concentration in operations, despite steady reduction in southern India and risks related to regulatory and legislative changes in the microfinance sector.
As on March 31, 2020, Asirvad’s assets under management (AUM) stood at Rs 5,488 crore (including off-book of Rs 1072 crore), registering a two-year compound annual growth rate (CAGR) of 50%. However, this momentum was curbed by lower disbursements in the first half of fiscal 2021, on account of the Covid-19 pandemic. With a gradual revival in business activity through the second half of the fiscal, the AUM increased to Rs 5,985 crore as on March 31, 2021, registering an on-year growth of 9.1%.
The company’s collection efficiency (including over-dues but excluding prepayments) revived towards the end of the first quarter of fiscal 2021, and reached 85% in September 2020. Efficiency improved to 99.9% in March 2021 but then dropped to around 89% in April 2021 and further to 57% in May 2021 given the sharp spike in cases due to the second wave of Covid-19 and localised lockdown by states to curb the pandemic. The company’s ability to improve its current collections in the coming months and eventually reach the pre-Covid levels of around 99% on a steady state basis will be a key monitorable. In fiscal 2021, with steady improvement in collections and revival in economic activity from July onwards, Asirvad started disbursing from August 2020, and with significant improvement in collections, disbursements also increased and stood at about Rs 3,596 crore in fiscal 2021. However, the pace slowed in April and May 2021 due to lockdown restrictions. Sustainability of collections for the incremental disbursements will be closely monitored.
Given the disruption in the cash flows of many borrowers amid the pandemic and considering the potential challenges in recovering overdues, the company made a provision of Rs 300 crore (including write-off of Rs 143 crore) in fiscal 2021. Further, under the RBI Resolution framework 1.0, Asirvad had undertaken restructuring worth Rs 211 crore. Nevertheless, asset quality remained moderate and the 90+ days past due (dpd) stood at 2.5% as on March 31, 2021, compared with 1.8% a year earlier. Asirvad is expected to carry out restructuring of its book under the RBI Resolution Framework 2.0. The performance of the restructured portfolio besides overall book, in the coming months will be a key monitorable. The intermittent lockdowns and localised restrictions because of the second wave of the pandemic could delay collections in upcoming months due to the impact on the cash flows of borrowers. Any change in the payment discipline of borrowers will also affect delinquency levels and hence Asirvad’s ability to manage asset quality and maintain healthy collections will remain a monitorable.
On a standalone basis, Asirvad has sufficient liquidity buffer to cover total debt obligation and operating expenses in the coming months. As on May 31, 2021, Asirvad had liquidity of Rs 715 crore (excluding term loans and securitisation lines). Against this, total debt obligation (including operating expense and excluding PTC/DA) was around Rs 554 crore until July 2021. This represents liquidity cover of 1.29 times for two months even after assuming nil collections. Total collection was around Rs 271 crore in May 2021. These monthly collections are adequate to take care of Asirvad’s monthly debt obligation and operating expenses. Furthermore, Asirvad should receive timely need-based financial support from its parent, MAFIL, in case of any exigency. Nevertheless, the ability to enhance collection efficiency in the coming months to pre-Covid-19 levels will remain a key monitorable. |
Analytical Approach CRISIL Ratings has assessed the standalone financial and business risk profiles of Asirvad and has factored in the company’s strategic importance to, and expectation of strong financial support from, MAFIL. |
Key Rating Drivers & Detailed Description Strengths:
The ratings on Asirvad's debt centrally factor in the company’s strategic importance to, and expectation of financial support from, MAFIL. The microfinance segment is strategically important to the Manappuram group, as it is the largest business after gold loans. Asirvad accounted for around 22% of the overall asset mix of MAFIL on a consolidated basis as on March 31, 2021. As the business is scalable and has been profitable, it shall be a key growth driver for the group over the medium term.
MAFIL holds 94.78% equity in Asirvad and has infused growth capital in the latter and will continue to do so when required. In fiscal 2019, the parent infused equity of Rs 371 crore. In addition, Mr VP Nandakumar (managing director of MAFIL) and two other directors of MAFIL are on the board of Asirvad. MAFIL will continue to hold a majority stake in Asirvad.
Asirvad’s capital position has witnessed substantial improvement owing to capital infusion by the parent. MAFIL infused Rs 371 crore in Asirvad in fiscal 2019. Networth and adjusted gearing stood at Rs 1055 crore and 5.5[1] times, respectively, as on March 31, 2021, against Rs 278 crore and 10.3 times, respectively, as on March 31, 2018. The capital position is supported by healthy internal accrual; in fiscal 2020, Asirvad reported profit of Rs 235 crore against profit of Rs 133 crore in the previous fiscal. However, the net profit dropped to Rs 16.9 in fiscal 2021, because the company incurred a net loss of Rs 5 crore for the first half of fiscal 2021, primarily because of provision of Rs 157 crore, of which Rs 142 crore was against Covid-19. For the full fiscal 2021, the company made a provision of Rs 300 crore (including write-off of Rs 143 crore). Gearing should remain around 7 times on a steady-state basis over the medium term. Given that microfinance is the second largest business of MAFIL, the parent will likely infuse capital at regular intervals to support growth in Asirvad’s operations.
After reporting losses of Rs 10 crore in fiscal 2018 due to high provisioning cost, the company reported healthy profit of Rs 133 crore in fiscal 2019 and Rs 235 crore in fiscal 2020. Return on managed assets (RoMA) thus stood at 3.6% in fiscal 2019 and 4.1% in fiscal 2020. However, the company reported net profit of just Rs 16.9 crore in fiscal 2021, primarily due to Rs 300 crore provisioning (including write-off of Rs 143 crore) considering the potential challenges in recovering overdues amid the pandemic. Consequently, the RoMA dropped to 0.3% during fiscal 2021. Along with the growth in portfolio, the company maintained net interest margin (NIMs) of 7.0-9.5% in the past four fiscals. Operating cost has also benefitted from the operating leverage attained with high growth in portfolio. Increase in the AUM per branch and per district, also indicates a ramp-up in portfolio at the same branch cost.
Credit cost rose to 4.4% in fiscal 2021, compared with 2.6% in fiscal 2020, on account of the company's aggressive provisioning policy. Given the aggressive provisioning implemented by the company in fiscal 2020 and fiscal 2021, profitability is expected to improve in the coming quarters of fiscal 2022. Nevertheless, in the near term, Asirvad’s ability to manage recoveries to pre-pandemic level would be a key rating sensitivity factor.
Weaknesses:
Despite presence in 22 states through 1,028 branches, the southern states accounted for around 37% of the company’s portfolio as on March 31, 2021. However, this concentration has reduced from 49% as on March 31, 2018, and around 63% as on March 31, 2017. Also, the portfolio is well diversified across districts, with the top five districts accounting for only 7.2% of the portfolio as on March 31, 2021. The company is increasing focus on the eastern and north-eastern states to drive growth and reduce the share of southern states. Amidst fast growth in the portfolio, the ability to diversify geographically and maintain stable systems and processes to avoid any asset quality pressures, remain critical and hence, a key rating sensitivity factor.
Asset quality improved substantially in fiscal 2019, with 90+ dpd reducing to 0.5% as on March 31, 2019, from 2.3% as on March 31, 2018, and 4.4% as on March 31, 2017. The improvement was aided by write-off of around Rs 180 crore in fiscals 2017 and 2018, and the base effect caused by portfolio growth of over 60% in fiscal 2019. However, the company has taken steps to strengthen its internal processes, such as branch grading, based on collection efficiency, end-to-end process notes, zero cash policy at branches and pin code analysis for new branch identification. The company is focused on building a more robust portfolio with customers who have a proven repayment track record. However, in fiscal 2020, asset quality saw some moderation primarily on account of political unrest in Karnataka and floods in several districts, which led to 90+ dpd of 1.8% as on March 31, 2020. This further weakened on account of the pandemic, and the proforma 90+ dpd stood at 2.5% as on March 31, 2021. As the situation regarding the severity and longevity of the Covid-19 impact evolves, sustainability of asset quality in the near-to-medium term will be monitored closely. Besides, with the risk of potential increase in credit losses in the near-to-medium term, profitability will remain closely monitored.
The microfinance sector witnessed two major disruptive events in the past decade. The first was the crisis promulgated by the ordinance passed by the government of Andhra Pradesh in 2010, and the second was demonetisation in 2016. Promulgation of the ordinance on MFIs by the government of Andhra Pradesh in 2010 exposed them to regulatory and legislative risks. The ordinance triggered a chain of events that adversely affected the business models of MFIs by impairing their growth, asset quality, profitability and solvency. The sector witnessed high levels of delinquencies post demonetisation and subsequent socio-political events. The MFI Bill, 2020 passed recently by the Assam Assembly may increase asset-quality challenges for MFIs. Further, announcement of any loan waivers may worsen matters, due to their impact on repayment discipline. The sector also remains susceptible to regional issues such as elections, natural calamities and borrower protests among others, which may result in momentary spurt in delinquencies. This indicates the fragility of the business model to external risks. As the business involves lending to the poor and downtrodden sections of society, MFIs will remain exposed to socially sensitive factors, including high interest rates, tighter regulations and legislations. [1]Includes off-book borrowings |
Liquidity: Strong Asirvad had cash and equivalents, including liquid investments, of Rs 715 crore as on May 31, 2021. As against this, debt obligation due for servicing over the two months through July 2021, aggregated to Rs 554 crore. In addition, the company had unutilised term loan of Rs 903 crore and Rs 400 crores worth of securitisation as on May 31, 2021. Liquidity is also supported by steady collections (Rs 271 crore) over the past 2-3 months. Liquidity is further cushioned by availability of funding lines of Rs 250 crore from MAFIL, which has not been utilised yet. |
Outlook: Stable CRISIL Ratings believes Asirvad will receive strong financial and managerial support from its parent over the medium term, and maintain adequate capitalisation |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Asirvad, an NBFC microfinance institution, is a majority-owned subsidiary of MAFIL. Mr SV Raja Vaidyanathan, who was the managing director until June 30, 2021, set it up in 2007. Mr. Ravindra Babu is the current managing director of the company. MAFIL acquired a stake in Asirvad in February 2015, which it increased to 94.78% as on June 30, 2020. Asirvad had 1,028 branches across 316 districts in 22 states as on March 31, 2021.
Asirvad reported profit after tax of Rs 16.9 crore on total income of Rs 1,077 crore in fiscal 2021. Loan portfolio increased to Rs 5,985 crore as on March 31, 2021, from Rs 5488 crore as on March 31, 2020, with a gradual revival in business activity through the second half of fiscal 2021 even as the momentum was curbed by lower disbursements in the first half, on account of the Covid-19 pandemic. |
Key Financial Indicators
^includes off-book borrowings |
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: Details of Ratings withdrawn
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Criteria Details
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