| Avanti Finance Private Limited | ||||||||||
| 'CRISIL BBB+/Stable' assigned to Non Convertible Debentures | ||||||||||
| Rating Action | ||||||||||
| ||||||||||
| ||||||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||||
| 1 crore = 10 million | ||||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL BBB+/Stable’ rating to the Rs.50 crore non-convertible debentures of Avanti Finance Private Limited (Avanti) and reaffirmed its ‘CRISIL BBB+/Stable’ rating on the long-term bank facilities and existing non convertible debentures.
The ratings continue to factor-in Avanti’s linkage with, and expectation of continued support from, its key promoter, the NRJN Trust. The rating also factors in the company’s adequate capitalisation, backed by the founders’ strong commitment and high degree of financial flexibility to raise equity, its experienced senior management team and digitisation of operations to increase scalability. These strengths are partially offset by its small scale of operations that lacks seasoning, weak earnings profile and the inherently modest credit risk profile of borrowers. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has assessed the standalone business and financial risk profiles of Avanti. The ratings also factor in the expectation of timely financial support from NRJN Trust in case of any exigency. The trust holds 87% equity stake as on December 31, 2023. |
Key Rating Drivers & Detailed Description Strengths: Expectation of continued support from the founders Promoted by Mr Ratan Tata and Mr Nandan Nilekani, Avanti has a strong parentage with a vision to ensure financial inclusion for 100 million households over the next 5-7 years. Mr Ratan Tata and Mr Nandan Nilekani (through NRJN Trust) hold 11.2% and 87.0% of equity stake, respectively, in the company as on December 31, 2023. Using technology to ensure timely availability of credit to the neediest sections of society is a dear cause for the founders. The company has raised capital of Rs 499 crore in the form of equity and convertible securities since its inception. Of the same, Rs 165 crore of equity was infused by the founders.
During fiscal 2023, Avanti raised capital of Rs 32 crore (in the form of compulsory convertible preference shares) from NRJN trust and Oikocredit. Further in March and April 2023, the company raised another Rs 164 crore from Rabo partnerships, IDH Farmfit Funds and Oikocredit. Post the conversion, the shareholding of NRJN Trust (Mr Nandan Nilekani) is expected to reduce to below 50%, subject to valuation at time of conversion. However, it will continue to be single largest shareholder. Further, as per covenants with lenders, NRJN Trust will continue to hold minimum 26% stake in Avanti and Mr Ratan Tata or Mr Nandan Nilekani will continue to be on the Board of Directors of Avanti. In view of the strong moral obligation and continued board level strategic support, the rating centrally factors in articulation of timely financial support from NRJN Trust. The NRJN trust has demonstrated its financial commitment by articulation of its intention to assist Avanti in organising for any shortfall in liquidity that may be required for timely repayment of debt and also for maintaining adequate capital as per applicable regulations.
Adequate capitalisation Avanti’s capital position remains adequate with its ability to raise capital in a timely manner. The company has raised capital of Rs 499 crore in the combination of equity and convertible securities since its inception. The networth and gearing as on December 31, 2023, stood at Rs 312 crore and 2.6 times respectively as compared to networth of Rs 282.7 crore and gearing of 1.8 times as on March 31, 2023. On a steady state, gearing is unlikely to go beyond ~3 times. However, Avanti has been able to raise equity funds at regular intervals to fund this cash burn.
CRISIL Ratings has also taken note of the recent measures by Reserve Bank of India (RBI) covering the Banking and NBFC sector. Firstly, on the asset side for NBFCs, there is an increase in risk weights for unsecured consumer loans (including credit card receivables), by 25 percentage points to 125% from 100% earlier. This regulation applies to all retail loans except housing loans, vehicle loans, educational loans, loans against gold and microfinance/SHG loans. The increase in risk-weighted assets is expected to have limited impact on the capitalisation of the company.
Secondly, there is an increase in risk weights for Bank’s exposure to NBFCs by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%. Herein, loans to HFCs, and loans to NBFCs which are eligible for classification as priority sector are excluded. This development may potentially lead to a increase in the cost of bank borrowings for NBFC sector. This could lead to diversification in the borrowings mix with higher share of capital market instruments. The ability of NBFCs to pass on the potentially higher borrowing costs will be monitored.
CRISIL Ratings believes that Avanti would continue to raise capital either directly through the founders or through external investors, for its future requirements and, the same will support Avanti in maintaining its capitalisation at adequate levels.
Strong management team and board of directors that comprises of industry veterans The high pedigree of the company’s board, comprising Mr Ratan Tata, Mr Nandan Nilekani and Mr Vijay Kelkar, Ms Bindu Ananth, Ms Sukanya Kripalu, Mr Subbu Subramanian and Mr Rahul Gupta, helps in strategy formulation. The senior management consists of persons with extensive experience in their functional areas. The CEO, Mr Rahul Gupta, was the MD-Business Development for the complete portfolio of GE businesses in the ASEAN region prior to joining Avanti. The COO, Mr Manish Thakkar, has over 22 years of experience in the financial services sector. The Chief Product Officer, Mr Lalitesh Katragadda, responsible for building the Avanti technological platform, was the Google Head of India products. The Chief of Partnerships & Operations, Mr Sunil Kumar Tadepalli, has over 22 years of experience across industries in organisation effectiveness, strategy and executive coaching. Chief Risk Officer, Mr. Nagaraj Subrahmanya, has over 20 years of experience in the financial services industry with domain expertise in the areas of Customer and Product Analytics, Credit Risk Management, Valuations and Underwriting. Avanti is expected to benefit from the guidance of the Board and significant experience of the senior management team as it builds its business model, operational setup and steadily scales up the loan book.
Digitization of operations to increase scalability Avanti does not follow a brick-and-mortar model but uses an in-house technological platform to disburse loans. This unique platform-based lending model is used to digitally carry out end-to-end operations through a single application. The company has developed an in-house platform called the “Avanti Platform” based on the crowd sourced ‘Indihood platform’ developed by its Chief Product Officer (Mr Lalitesh Katragadda). The platform has on-boarding, disbursements, and loan management software with underwriting and collections capabilities. This platform will enable better scalability as the company adds new partners. The company has already started 100% cashless disbursements through partner networks, which help in better monitoring. Additionally, the company does not have any branches or any dedicated staff at partner locations as it is able to track loan movement online through the Avanti Platform with the help of its partners. The company offers loan products based on the specific needs of the end consumer and these nuances can be fed into the software and any deviations get flagged.
This platform is modular and scaleable and is critical for Avanti to build a service income/co-lending-based capital efficient model. Additionally, it can work as a market-place platform. Avanti should continue to benefit from this platform as it gives options to build different business models in the long term.
Weaknesses: Moderate but improving scale of operations The AUM of the company stood at Rs. 1288.5 crore as on December 31, 2023, as against Rs. 629.3 crore as on March 31, 2023, registering an annualized growth of 139.7% in first nine months of fiscal 2024. Of the total loan book, colending book constitutes around 19.6% as on December 31, 2023. The partner networks have been associated with the end consumers since a long time, which creates a social pressure to repay loans. The commissions of the partner depend on the repayments by the end consumer which acts as an incentive to provide (to the partner) to ensure timely collections.
Asset quality susceptible to risks associated to unsecured nature of loans The portfolio largely comprises unsecured loans to clients with below-average credit risk profiles and lack of access to formal credit and based in regions with limited credit history. Typical borrowers are rickshaw drivers, farmers, small store owners, and vegetable vendors. The income flow of these households could be volatile and dependent on the local economy. Pressure on the cash flow of these households due to unforeseen circumstances may affect the repayment capability of these borrowers. Additionally, in case if these borrowers miss more than one instalment, it may be difficult for them to pay multiple instalments together resulting in delinquencies.
The asset quality of the company has seen improvement during fiscal 2024, with the 90+dpd (days past due) for the overall book stood at 2.3% as against 7.3% as on March 31, 2023. In fiscal 2023, there was a large partner account which got non-performing due to which the NPA levels were elevated. Nevertheless, the same was written off in fiscal 2024 leading a major improvement in 90+ dpd. Further, 90+ dpd (adjusting for write-offs), stood at 4.4% as on December 31, 2023. The company made full provisions against the entire exposure, hence net NPA stood nil as on December 31, 2023. Avanti’s ability to scale up its portfolio, backed by healthy asset quality, remains a key rating monitorable.
Weak earnings profile due to higher overheads The company reported net loss of Rs. 3.9 crore in first nine months of fiscal 2024 as against net loss of Rs. 60.9 crore in fiscal 2023. The profitability is majorly impacted owing to high operating and credit cost.
Having started full-fledged operations only in fiscal 2019, Avanti’s operating expense is expected to remain high over the medium term. Operating costs to average managed assets improved though remained high at 11.8% as of December 31, 2023, as against 13.5% in fiscal 2023. The company is expected to incur Rs 10-15 crore annually towards hosting and licensing fees of the platform. Consequently, the company is expected to demonstrate profitability as benefits of economies of scale kick in with portfolio growth.
As far as credit costs are concerned, it improved and stood at 4.0%(annualized) in first nine months of fiscal 2024, as against 6.0% in fiscal 2023. During fiscal 2023, one of the partners became nonperforming in the fourth quarter of fiscal 2023 and against this entire exposure Avanti made full provisions leading to increase in credit cost. |
Liquidity: Adequate Avanti's asset liability maturity profile is adequate, with cumulative positive gaps across all buckets up to one year as on December 31, 2023. As on February 28, 2024, Avanti had liquidity of around Rs 81 crore, against total debt obligation of around Rs 62 crore for the next two month, Liquidity is further cushioned by expectation of need-based and timely funding support from the founders, in case of any exigency. |
Outlook: Stable Avanti should continue to receive strong financial and managerial support from its parent over the medium term, while maintaining adequate capitalisation |
Rating Sensitivity Factors Upward Factors
Downward Factors
|
About the Company Avanti was founded on August 2016 by Mr Ratan Tata, Mr Nandan Nilekani and Dr Vijay Kelkar to deliver financial inclusion. The company received its NBFC license in June 2017.
Avanti’s goal is to sustainably impact the quality of life of 100 million households of the neediest in India in the next 5-7 years. It is a technology-based platform that will focus on both individual and community-based lending. Avanti does not follow a brick-and-mortar model but uses an in-house built technological platform to disburse the loans and has 100% cashless disbursements. The company will leverage on the network of various social organisations, which have partnered with multiple social sector entities over the years. The company mostly provides unsecured loans and their loan products are tailored to meet the needs of the end consumer. The company does not follow a brick-and-mortar model and hence, does not have its own branches but has tie ups with partner networks through which it provides loans to end consumers. The company selects partners who have sufficient vintage and are solving key issues faced by people in particular pockets of India. It follows a two-pronged underwriting approach wherein it underwrites the partner through a comprehensive internal criterion before underwriting the end consumer. While the loans are disbursed to the end consumer and not the partner network, the collection is done with the help of the partner networks. |
Key Financial Indicators
|
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
|
Criteria Details
|