| Belstar Microfinance Limited | ||||
| Rating outlook revised to 'Positive', rating reaffirmed | ||||
| Rating Action | ||||
| ||||
| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
|
CRISIL has revised the rating outlook on the long- term bank facilities of Belstar Microfinance Limited (Belstar; formerly known as Belstar Microfinance Limited) to 'Positive' from 'Stable' and reaffirmed the rating at 'CRISIL A+'. |
| Analytical Approach |
|
For arriving at the ratings, CRISIL has assessed the standalone financial and business risk profiles of Belstar. Additionally, CRISIL has factored in the company's strategic importance to, and expected strong financial support from, its parent, Muthoot Finance. |
| Key Rating Drivers & Detailed Description |
|
Strengths *Strategic importance to and expectation of continued financial support from parent, Muthoot Finance The parent, Muthoot Finance is expected to continue to support Belstar both on an ongoing basis and in the event of distress, given its majority ownership and strategic importance to the group, and presence in the board of directors. The microfinance business is strategically important and helps diversify the financial product suite of the parent. The business is well established and is growing at a healthy pace and formed 5.2% of the group's AUM as on September 30, 2019. Also, the microfinance business is scalable, and expected to grow materially over the medium term. Muthoot Finance has, so far, infused Rs 183.83 crore of equity till date, demonstrating the importance of microfinance business. Furthermore, the group has a strong presence on the board of Belstar through Mr George Alexander, son of managing director of Muthoot Finance, and Mr George M Jacob, son of joint managing director of Muthoot Finance and a key management person, Mr. Bijimon. In view of the above, CRISIL believes that Muthoot Finance group has a strong moral obligation to support Belstar, going forward. *Adequate capital position Belstar's capitalisation is adequate with a networth of Rs.450.8 crore and adjusted gearing (including securitisation) of 5.4 times as on September 30, 2019. CRISIL expects the gearing to remain around 5 times on a steady state basis over the medium term. Capitalisation of Belstar is expected to remain adequate over the medium term on the back of the strong financial flexibility of the promoters, Muthoot Finance group, to infuse equity both, on an ongoing basis, for growth as well as in times of distress. *Healthy earnings profile Belstar has healthy earning profile on the back of moderate operating costs, low credit costs and reduction in leverage. The operating costs are lower than other MFIs due to their branch based collection model and this has been in the range of 5 ' 5.5% for the past 3 years. The credit costs have been low in the range of 0.2 ' 1.3% during the same period. This coupled with reduction in gearing has resulted in return on managed assets (RoMA) increasing to 3.7% (annualised) for the six months ended September 2019 from 2.5% in fiscal 2018. As the company veers towards steady-state gearing levels, RoMA will decrease but still expected to remain healthy at over 3% over the medium term. At an overall level, Belstar has increased its AUM at fast pace and also forayed into newer geographies. Consequently their ability to keep credit costs at low levels will determine the health of earnings profile, going forward. *Healthy asset quality The 90+ dpd has been consistently ~1% and the 30+ dpd has been between 1.5-2% for the past 3 years (including demonetisation period). Their portfolio as on December 2016 was Rs 453 crore with more than 75% from Tamil Nadu ' which was relatively less impacted by demonetisation. Additionally, the SHG model also partly helped since it involves an inculcation of a savings habit among members prior to disbursement. CRISIL has noted delinquencies in some districts due to employee fraud, local market issues and natural calamities. The company has taken effective steps through adoption of technology like usage of tablets and 100% NEFT disbursements to reduce instances of employee fraud. They have also sent legal notices to delinquent borrowers and have been able to recover some portion of their dues. Over the last two years, the company has forayed into other geographies and AUM has increased by nearly 3 times since March 2017. Also the expansion has been primarily through JLG model. CRISIL has not seen any major difference in delinquencies between the SHG and JLG model till date. However, the JLG book has not yet witnessed cycles. Around 69.16% of the book as on September 30, 2019 comprised first and second cycle borrowers. As on September 30, 2019 the 90+ dpd was at 1.1%. So while overall delinquencies have remained low so far, CRISIL will continue to monitor Belstar's ability to maintain asset quality as it scales up its book. Weaknesses: *Geographical concentration of portfolio As on September 30, 2018, Tamil Nadu had a high concentration of portfolio at 72% which has reduced to 51% as on September 30, 2019. The high concentration is mainly on account of association with HIH which has a strong presence in the state. More importantly, Belstar has 23% and 34% of the loan book concentrated in top 3 and top 6 districts respectively ' all of which are contiguously located. The top 3 districts AUM is around 96% of Belstar's networth. This level of district-wise concentration ' especially contiguous ' is relatively higher as compared to other CRISIL rated peer MFIs. This increase their susceptibility to local socio political risks, inherent in the microfinance business. Nevertheless, CRISIL notes the strong local level presence of HIH in these districts which may act as a mitigant. In addition, Belstar's loan growth in states other than Tamil Nadu is significant in the recent period, wherein the track record of performance is relatively short. Some upticks in delinquencies were observed in some districts due to employee fraud, local issues and natural calamities. Therefore, Belstar's efforts to reduce the concentration and establish its presence in newer geographies will be a key monitorable. *Susceptibility to regulatory and legislative risks associated with the microfinance sector The microfinance sector has witnessed two major disruptive events in its life cycle of around 15 years. The first one was the Andhra crisis in 2010, and the second demonetisation in 2016. In addition, the sector has faced issues in several geographies of varying intensity. Promulgation of the ordinance on microfinance institutions (MFI) by the Government of Andhra Pradesh in 2010 demonstrated their vulnerability 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. Similarly, the sector witnessed high level of delinquencies post-demonetisation and subsequent socio-political events. This indicates the fragility of the business model vis-a-vis external risks. Since business involves lending to the poor and downtrodden sections of the society, MFIs will remain exposed to socially sensitive factors, including charging high interest rates and, consequently, to tighter regulations and legislation. |
| Liquidity Strong |
|
As per their ALM statement of September 30, 2019, Belstar had positive gaps across maturity buckets upto 1 year. The company has scheduled debt repayments of Rs 675.65 crore till May 2020 against this the company has sanctioned but unutilised bank facilities of Rs 95 crore. Additionally, Belstar also has cash and bank balances of Rs 308 crore as on September 30, 2019. The company had average monthly disbursements of Rs 185 crore and average monthly collections of Rs 142 crore from April 2019 to September 2019. |
| Outlook: Positive |
|
The outlook on rating of Belstar reflects the outlook on its parent's rating. CRISIL believes Belstar will continue to receive strong operational, financial and managerial support from Muthoot Finance, and maintain adequate capitalisation and healthy earnings profile over the medium term. |
| About the Company |
|
Belstar was incorporated in January 1988 in Bangalore and obtained NBFC license from RBI in March 2001 and got reclassified as NBFC-MFI in 2013. The company was acquired by Hand in Hand Group (NGO) in September 2008. In 2016, Muthoot Finance Limited, the largest gold loan NBFC in the country, made an equity investment in the company and their stake is at 70% as on September 30, 2019. The portfolio was Rs 2106 crore as on September 30, 2019 with operations in 16 states and 78 districts. The SHG model has a group size of 10-20 people and an average ticket size of Rs 45000 and the JLG model has a group size of 4-10 people and an average ticket size of Rs 25000. |
| Key Financial Indicators | ||||||||||||||||||||||||||||||||||||||||
|
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
|