Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL A+/Stable’ rating on the Non-convertible Debentures of Avendus Finance Private Limited (AFPL). CRISIL Ratings has also reaffirmed its ‘CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’ on other debt instruments, and bank facilities.
CRISIL Ratings has also withdrawn its rating on Rs 34.3 crore long-term principal protected market linked debentures and 40 crore Non Convertible Debentures (See Annexure: Details of rating withdrawn for details) in line with its withdrawal policy. CRISIL Ratings has received independent confirmation that these instruments are fully redeemed.
The prefix 'PP-MLD' indicates that the principal amount of the debentures is protected, while returns remain market-linked. Also, payments to investors are not fixed and are linked to external variables such as government yield, commodity prices, equity indices, foreign exchange rates, or equity valuation of the company.
The ratings continue to reflect the strong track record of the Avendus group in investment banking (IB), healthy capitalisation, and a conservative gearing policy. Strong domain knowledge, and relationships across mid-market corporates benefit the group in the IB space. The group has also diversified into other products that are synergistic to the existing offerings to service clients under a single umbrella. These strengths are partially offset by the risks inherent in the early stage of the lending business, and characteristic volatility in the capital-market-related businesses. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Avendus Capital Pvt Ltd (ACPL), and its subsidiaries (including AFPL), collectively referred to as the Avendus group, given their integrated operations, shared brand, and common promoters and management pool.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong track record of the Avendus group in IB; diversifying into synergistic segments The group is recognised among the top players in the IB domain, given its ability to execute complex transactions -- this is also reflected in the increasing average fee per deal. The promoters have demonstrated their expertise in several sectors such as technology, consumer goods, healthcare, digital systems, and business process outsourcing by successfully executing several IB transactions especially in the merger and acquisition advisory and private equity syndication space for over a decade. Within the IB space, the Avendus group has a strong market position in the digital and technology (D&T) domain. However, the non-D&T segment has also been gaining momentum. This resulted in the group forging strong relationships with several corporates in the mid-market space. The group offers an expanded suite of products, which are synergistic to the offerings for the clients under the ‘One Avendus’ theme. The group also forayed into the equity capital market advisory space early this year. The structured credit solutions complement its existing bouquet of services in the IB space, which includes structured financing and alternate investment funds Category II. It has also been establishing its position in the wealth management and asset management businesses. To augment its offerings further, the Avendus group acquired the institutional equities business of Spark Capital Advisors (India) Pvt Ltd deal which was concluded in December 2022.
The group has experienced business leaders heading the relatively new businesses (financing, wealth management and asset management). Leveraging existing relationships in the mid-corporate space will create business opportunities for the financing and wealth management businesses.
Comfortable capital position and conservative gearing policy With consolidated networth of Rs 1,365 crore as on March 31, 2022, the group is adequately positioned to support the growth of its businesses over the medium term. Most of the capital requirement will be in the lending business housed in AFPL, as other businesses including IB are fee based. The gearing policy is conservative, and the management intends to keep gearing below 3 times for the lending business (AFPL) over the medium term on a steady-state basis (1.0 times as on March 31, 2023). Gearing is expected at below 1.5 times at group level over the medium term on a steady-state basis (0.7 time as on March 31, 2022).
Weakness: Early stage of financing business; asset quality in lending business a monitorable While ACPL has a strong track record in IB, the lending business is relatively new. AFPL commenced lending operations in fiscal 2017 in the wholesale financing segment and had outstanding loans of around Rs 1,111 crore as on March 31, 2023 (Rs 1,007 crore as on March 31, 2022). The loan book growth is typically low due to cautious approach adopted by the management coupled with higher prepayments in addition to scheduled repayments.
AFPL also provides loan against securities for mid-market corporate clients of the Avendus group. This segment is still in an initial stage with a loan book of Rs 139 crore as on March 31, 2023 (Rs 263 crore as on March 31, 2022).
Strong relationships of the promoters and their understanding of business dynamics of mid-corporates support the lending business. Also, a strategy of measured growth in the lending business, along with conservative risk practices, augment the business risk profile. Gross non-performing assets (GNPAs) stood at 6.3% as on March 31, 2023 on account of one exposure (amounting to Rs 83.4 crore) slipping in to NPA. AFPL has completely provided for the same and hence the net NPA was NIL. Another account which had slipped in to NPA in fiscal 2022 has been written off. These accounts along with another exposure were part of the restructured book under the Reserve Bank of India’s Covid Resolution Framework 1.0 and 2.0 scheme. Performance of the restructured account will remain a monitorable. Overall, ability to manage asset quality, maintain healthy collections, and scale up the lending business profitably, remains to be seen.
Susceptibility to cyclicality in capital-market-related businesses The group's capital market businesses (IB and asset management) remain susceptible to economic, political and social factors that drive corporate and investor sentiments. However, the group reported strong performance in IB, supported by the advisory-based business model and strong relationship with clients. The IB business reported revenue of Rs 869 crore in fiscal 2022, supported by healthy pick up in the D&T segment. However, the group had to take a hit of Rs 151 crore due to impairment of the intangible assets created by way of acquisition of Ocean Dial Asset Management Ltd (acquired in August 2017). Despite this, the group’s net profit increased to Rs 162 crore for fiscal 2022 from Rs 80 crore in fiscal 2021 (Rs 12 crore in fiscal 2020). In fiscal 2023, while the deals in the D&T segment have remained subdued, the non-digital segment has picked up. Further, in the wealth segment, the group is focusing on trail income to sustain revenue from the business.
The group has been working towards increasing the share of its lending business. However, share of revenue from the lending business in the consolidated revenue declined during fiscal 2022 due to strong performance in the IB segment. Nevertheless, in the longer term, the lending business, which has relatively stable revenue, is expected to partially offset the volatility in the capital market-related businesses. |
Liquidity : Strong Liquidity of the group is strong, with cash and bank balance (Rs 78 crore), mutual fund investments (Rs 523 crore), fixed deposits (Rs 14 crore) and undrawn bank lines (Rs 40 crore) as on May 31, 2023, which are sufficient in view of the limited scale of operations and diversified revenue streams (fee-based businesses contribute to most of the revenue). |
Outlook Stable The Avendus group will continue to maintain a healthy capital position and conservative gearing policy, which will offset the limited track record of the group in the lending business |
Rating Sensitivity factors Upward factors
Downward factors
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About the Avendus Group ACPL was founded in 1999 by Mr Ranu Vohra, Mr Kaushal Aggarwal and Mr Gaurav Deepak. The company operates in the financial services space through its subsidiaries in the areas of financial advisory, capital markets, wholesale financing, wealth management and alternative asset management.
ACPL (consolidated) had total income of Rs 1,386 crore and net profit of Rs 162 crore for fiscal 2022, against Rs 709 crore and Rs 80 crore, respectively, in fiscal 2021.
AFPL is a wholly owned subsidiary of ACPL, and offers financing products such as promoter funding, corporate finance, customised structured debt solutions, and acquisition finance. The company had outstanding loans (net of ECL) of about Rs 1,228 crore as on March 31, 2023 (Rs 1,243 crore as on March 31, 2022).
For the year ended March 31, 2023, AFPL had total income (net of interest expense) of Rs 157 crore and profit after tax (PAT) of Rs 42 crore as compared to total income (net of interest expense) of Rs 121 crore and net profit at Rs 25 crore in the previous fiscal. |
Key Financial Indicators (ACPL – consolidated)
Key financials (AFPL)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*yet to be issued
Annexure - Details of Rating Withdrawn
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Annexure – List of entities consolidated
*AFPL is a 100% subsidiary of ACPL |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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