Detailed Rationale

This Rating Rationale (RR) is being published in continuation to the RR dated August 21, 2023 which communicated that the rating was under appeal. Upon due consideration of the additional information received, the rating has been reaffirmed at 'CRISIL A/CRISIL PPMLD A/Positive/CRISIL A1'. CRISIL Ratings has also enhanced its rated bank loans to Rs 1750 crore. The detailed rationale follows:

 

On August 21, 2023, CRISIL Ratings had revised its outlook on the ratings on debt instruments of Auxilo to ‘Positive’ from ‘Stable’. The revision in outlook factored in bolstering of the capitalization profile supported by the recent equity raise from external investors of Rs 470 crores (of which Rs 285 crores has been infused) and expected improvement in the scale of operations and earnings profile on the back of strong underlying demand and benefits of operational efficiencies.

 

The networth of the company stood at Rs 467 crore as on June 30, 2023 as compared to Rs 458 crore as on March 31, 2023. With the equity infusion of Rs 285 crore in July 2023 and expected infusion of additional Rs 185 crore over next quarter of this fiscal, the networth will double from current levels. This will place the company in good stead to meet the strong underlying demand for education loans from students going abroad and consequently scale up the operations sharply. The assets under management (AUM) grew sharply by ~120% to Rs 1,673 crore as on March 31, 2023 (Rs 763 crore as on previous year). It has further increased to Rs 1,936 crores as on June 30, 2023. Amidst the increase in scale, the earning profile too has improved, which was earlier constrained amidst elevated operating expenses. The company reported a return on managed assets (ROMA) of 2.3% (annualized) in first quarter of fiscal 2024 as compared to 1.8% in full year fiscal 2023.

 

The ratings continue to factor in the comfortable capitalization along with the strong profile of the promoter shareholders with expectation of support. These strengths are partially offset by the modest scale of operations with limited seasoning in the portfolio and moderate, although improving, earnings profile.

 

Auxilo was promoted by Mr Akash Bhanshali (currently holding around 37.15% stake via ELME Advisors LLP) with Balrampur Chini Mills Ltd (Balrampur Chini; rated ‘CRISIL AA+/Stable/CRISIL A1+’, currently holding around 37.15% equity stake) as a strategic investor. The company is likely to benefit from the high level of experience of its shareholders and their past track record of running successful businesses.

 

CRISIL Ratings has also withdrawn its rating on Non-convertible debentures of Rs 33 crore (See annexure 'Details of Rating Withdrawn') as CRISIL Ratings has received independent confirmation that these instruments have been redeemed. The withdrawal is in line with CRISIL Ratings withdrawal policy.

Analytical Approach

CRISIL Ratings has analysed the standalone business and financial risk profile of Auxilo. The rating also factors in the financial flexibility and expected financial and operational support from the promoters.

Key Rating Drivers & Detailed Description

Strengths:

• Strong promoter profile with high degree of involvement and expectation of support: Auxilo was promoted by Mr Akash Bhanshali (currently holding around 37.15% stake via ELME Advisors LLP) with Balrampur Chini Mills Ltd (BCML; rated CRISIL AA+/Stable/CRISIL A1+, currently holding around 37.15% equity stake) as a strategic investor. The company is likely to benefit from the high level of experience of its shareholders and their past track record of running successful businesses. Balrampur Chini’s presence as one of the strategic shareholder will also be beneficial to the company.

 

The company has raised funds of Rs 470 crores in fiscal 2024 of which Rs 285 crores was infused which has diluted the shareholding of BCML and ELME Advisors to 74.3%. Post the complete capital infusion, the shareholding of ELME and BCML would combined reduce to around 66%. Despite the dilution, both the shareholders are actively involved in the company with regular monitoring of operational and financial performance and retain Board and management control. Any dilution in their combined stake to below majority will be a key rating sensitivity factor. They have also extended support to the company via regular capital infusions having infused around Rs 350 crores since inception and also with debt funding post September 2018. The capital position of the company also benefits from their strong reputation in the market which is also reflective of their ability to rope in third party investors for capital needs. CRISIL Ratings expects their involvement in monitoring of the business to continue and also expects capital support in case of any distress.

 

• Healthy capitalisation metrics: The capitalisation metrics of the company remain comfortable. The networth of the company stood at Rs 467 crore with a gearing of 4.0 times as on June 30, 2023 compared to Rs 458 crore as on March 31, 2023 with a gearing metrics of 3.2 times (Rs 388 crore as on March 31, 2022, with gearing metrics at 1.2 times). The company has entered into definitive agreements with TATA Capital Growth Fund II, Xponentia Opportunities Fund II, Trifecta Leaders Fund I and ICICI Bank to raise Rs 470 crore of equity, out of the same Rs 285 crore has already been infused and the balance infusion is subject to regulatory approvals. This is expected to result in doubling of networth and will help to support scale up of the operations. CRISIL Ratings expects the capitalisation of the company to remain strong supported by regular equity infusion and the gearing levels to stay under 4 times over the medium term.

 

Weaknesses:

• Modest scale of operations with limited seasoning in portfolio: Auxilo commenced operations from October 2017 and is focused on educational space in India and caters to the niche segment of funding students who are travelling abroad for studies (higher education loans, HEL) and education institutions lending (EIL). The company had assets under management of ~Rs 1673 crore as on March 31, 2023 as compared to Rs 763 crore as on March 31, 2022. As on June 30, 2023 the AUM further increased to Rs 1936 crore. Of this 93% was constituted by HEL and remaining was EIL. The scale up in the portfolio has only been in the past couple of years with the AUM at Rs 265 crores as of March 31, 2019.

 

Given the scale up in the past couple of years only, the portfolio lacks seasoning. Nevertheless, the asset quality metrics for the company have fared well since inception. The company reported nil GNPAs till March 31, 2020. Owing to slippages within the EIL portfolio, the GNPA inched inched up to 1.65% as on March 31, 2023 however, the same partially moderated to 1.34% as on June 30, 2023 (1.62% as on March 31, 2022).

 

The asset quality performance of the HEL portfolio has been strong with 90+ dpd of 0.10% as on March 31, 2023, compared to 0.14% as on March 31, 2022. Within the HEL portfolio, about 86% of the portfolio is still under only partial interest/simple interest payment structure which will move to a full EMI structure over the next couple of years. Amidst the current environment, a compulsory co-borrower in HEL loans who is the earning member of the family provides some comfort. The previous vintages, wherein the portfolio has moved to a full EMI structure, have also fared well. Further, the company continues to receive high prepayments across vintages which supports the collections. Nevertheless, the performance of the HEL portfolio as it moves to a full EMI structure remains a key monitorable.

 

While the company has put in place strong underwriting practices the loan portfolio has limited track of seasoning. Therefore, the performance of the asset quality metrics as the portfolio scales up remains a key monitorable.

 

• Moderate, although improving, earnings profile: Controlled credit costs and improving operating cost ratios have supported the earnings profile of the company, helping it turn profitable in just 3 years of operations. The company reported a return on managed assets (ROMA) of 1.8% in fiscal 2023 against 1.6% in fiscal 2022 against (1.5% in fiscal 2020). The RoMA further improved to 2.3%(annualised) for Q1 of fiscal 2023.

 

The NIMs are supported by the yield on the portfolio which averages between 13-14%. Further, the company has incurred the expenses towards employees and IT systems and with the scale up in the operations the same has begun to sweat out. The operating expenses (as a % of total managed assets) improved to 4.0% for fiscal 2023 compared to 5.1% for fiscal 2022. The same has further improved to 2.9%(annualized) for Q1 of fiscal 2024. In addition to this, the credit costs, have remained also range bound between 0.3% and 0.7% in over the last 4 fiscals.

 

The sustainability in the improvement in the earnings profile hinges upon the continued control on credit costs which remains a key monitorable.

Liquidity: Strong

The company intends to maintain a liquidity cover of 3 months on net basis as a policy. The liquidity of the company is comfortable with cash and equivalents of Rs 394.7 crore and unutilised working capital lines of Rs 94.9 crore as on June 30, 2023. Against this the company had debt repayments of Rs 169.8 crore for next two months. The ALM profile as on June 30, 2023 also indicates no cumulative negative mismatches in the upto 12 months bucket.

Outlook: Positive

The positive outlook reflects CRISIL Ratings expectation of continued healthy growth in loan portfolio in fiscal 2024 along with improvement in the earnings profile. Capitalisation metrics and asset quality are expected to remain comfortable.

Rating Sensitivity factors

Upward factors:

• Significant scaling in the AUM along with sustainability in asset quality and improvement in earnings profile with a sustained RoMA of over 2.5% over the medium term
• Capitalisation metrics remaining comfortable over the medium term

 

Downward factors:

• Any material changes in the shareholding pattern and/or support philosophy of the promoters
• Any adverse movement in asset quality leading to impact on the earnings profile
• Moderation in capitalisation metrics with significant jump in adjusted gearing beyond 5 times on a sustainable basis

About the Company

Auxilo Finserve Private Limited, formed on October 4, 2016, was promoted by Mr Akash Bhanshali (ELME Advisors LLP) and Balrampur Chini Mills Ltd (rated: CRISIL AA+/Stable/CRISIL A1+) has been a strategic investor – both holding around 37.15% stake each as on date. The company received NBFC registration from RBI on May 3, 2017 and commenced operations in Oct 2017. The company has received multiple tranches of capital infusion over the years further the company has also entered into definitive agreements with TATA Capital Growth Fund II, Xponentia Opportunities Fund II, Trifecta Leaders Fund I and ICICI Bank to raise Rs 470 crore of equity, out of the same Rs 285 crore has already been infused and the balance infusion is subject to regulatory approvals. Post the infusion, the stake of the promoters will be at 66.16%.

 

Auxilo Finserve is focused on educational space in India and caters to the niche segment of funding students who are travelling abroad for studies (higher education loans) and also has a decent share of funding education institutions (education institutions lending).

Key Financial Indicators

Particulars	Unit	June-23^	Mar-23*	Mar-22*	Mar-21*
Total Managed Assets	Rs crore	2384	1951	866	672
Assets under management	Rs crore	1936	1673	763	532
Total Income (after finance cost)	Rs crore	32	95	60	43
Profit after tax	Rs crore	12	26	13	10
Gross NPA	%	1.34	1.65	1.62	1.36
Gearing	Times	4.0	3.2	1.2	0.8
Return On Managed Assets	%	2.3#	1.8	1.6	1.5

* Audited IndAS

^Unaudited IndAS

# annualised 

Any other information: Not applicable