Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL BBB-/Stable' rating to the Rs 100 crore bank loan facility of Eduvanz Financing Private Limited  (Eduvanz).

 

The rating reflects adequate capitalisation metrics of Eduvanz for the current scale of operations and first mover advantage in a niche segment. These strengths are partially offset by modest earnings due to high operating expenses, with limited diversification in funding profile and moderate scale of operations with limited track record.

 

Eduvanz is a non-banking finance company (NBFC) operating in a niche segment of financing skill-based courses of institutes and online learning platforms. While the company was founded in December 2016, the scale-up of operations started from fiscal 2020. It has a unique business-to-business-to-customer (B2B2C) model, wherein Eduvanz partners with the learning institutes/platforms to offer financing solutions to students/individuals for the courses. Thus, the customer acquisition of Eduvanz is primarily via these partner institutes/platforms.

 

Eduvanz has identified off balance sheet partnerships to be the key strategy and intends to keep the balance-sheet light. The company had total assets under management (AUM) of Rs 288.4 crore as on December 2021, out of which 38% is on-book and the rest is off balance sheet. Going forward, the company intends to have 70% of the AUM off balance sheet. The company already has off balance sheet partnership with around five lenders and is in advanced stages of discussion with a few banks for similar partnerships.

 

The loans of the company are primarily unsecured in nature, however, the company has an arrangement for 37% of the portfolio, as on December 2021, for some recourse from the partner institutes/platforms, in case the borrower defaults. The company has also recently diversified into the education related ancillary products wherein the company finances laptops, tablets, two-wheelers, etc.

 

Eduvanz has put in place the required systems and processes for the underwriting as well as collections of the loans. Further, the end use of funds has been defined as the company directly transfers the amount to the partners, minimizing the frauds at the borrower level. Nevertheless, on account of second wave of covid, the company witnessed an increase in the delinquencies with 90+ dpd increasing to 4.4% March 31, 2021. However, the same has come down to 3.1% as on December 31, 2021. Further, the company has negligible restructuring as on December 31, 2021. The company’s ability to maintain asset quality as the portfolio scales up will remain a monitorable.

Analytical Approach

For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of Eduvanz and its subsidiaries Eduvanz Payments Private Ltd, Educred Technologies Private Ltd and Eduvanz Credit Finance Private Ltd. These companies have strong operational and financial linkages, common senior management, and shared brand.

 

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:

• Adequate capitalization for the current scale of operations

Capitalisation metrics are adequate supported by the recent capital infusion. The company has, since inception, raised a total equity capital of around Rs147 crore from the marquee investors such Sequoia Capital and Unitus Capital, out of which Rs 100 crore was raised in fiscal 2022. Consequently, the reported networth of the company improved to Rs 112.4 crore with an adjusted gearing of 0.8 time as on December 31, 2021 as against Rs 24.2 crore and 2.6 times, respectively, as on March 31, 2021. The company is expected to follow an asset light model with 30% of the AUM being on-balance sheet of the company, which should reduce the capital requirement for the business. Further, the company is also in a process to raise ~$30-40 million over the next few quarters. Capitalisation is expected to remain adequate over the medium term, thus providing a cushion against asset-side risks.

 

• First mover advantage in a niche segment

Eduvanz is in the business of financing courses related to education and the company has created, over the past few years, a database around the courses, institutes, placement opportunities, salary hikes based on the courses of the partner institutes/platforms. The company has also ratings on the performance of the courses of the partners. The same data is used for the underwriting of the loans. It helps Eduvanz in taking informed decisions on the underwriting and provides better approval rates for the courses thereby strengthening the relationship with the partner institutes/platforms. Further, the company has end-to-end digital onboarding of the customer allowing the company to take the decisions on the course and borrower profile within a few minutes. While there is a credit officer looking at the borrower profile before the disbursement, digital systems and processes make the business model of the company scalable once the sourcing and underwriting infrastructure is in place. The same has also helped in the business in scaling up the AUM and the disbursements in the last 12-18 months. Its disbursements have increased to Rs 337 crore for the nine months ended fiscal 2022 as against Rs 195 crore for fiscal 2021. The company’s ability to scale-up once the competitive landscape in this space heats up, will need to be seen.

 

Weaknesses:

• Modest earnings due to high operating expenses

Owing to nascent stage of operations, operating expenses of the company remained high due to heavy investments in setting up technology infrastructure and hiring of several employees at senior management level. Consequently, the company is yet to break even, which is reflected by the company reporting a loss of Rs 11.7 crore for the nine months ended fiscal 2022, as against, a loss of Rs 10.5 crore for fiscal 2021. While operating expenses have come down to ~18% (annualized) of average total assets for the nine months ended fiscal 2022 as against ~25% of average assets for fiscal 2021, it still remains high. Nevertheless, owing to high reliance on technology for the processes, the company should achieve operating efficiencies and hence operating expenses are expected to be moderate gradually over the medium term.

Furthermore, yield remained adequate with internal rate of return (IRR) ranging from 18%-20%, thereby supporting the core earnings. However, owing to higher funding cost at around 13-15%, the net interest margins are constrained at 5-6%. In terms of credit cost, the company has been able to keep it under control, so far, at below 2.5% (as a % of average managed assets) for the last two fiscals. The credit costs stood at 0.9% (annualized) for the nine months ended fiscal 2022.

 

However, the loan book is not yet seasoned. Therefore, ability of the company to scale up the book profitably while maintaining adequate performance will remain a key monitorable.

 

• Limited diversification in funding profile

The resource profile of Eduvanz is concentrated with 90% of the on-book resources from NBFCs or financial institutions. Consequently, the funding cost has remained high at around 13-14% for the past few months, nevertheless the same has improved, since the capital raise of Rs 100 crore in first half of fiscal 2022, from 14-16% earlier. Nevertheless, the company has been focusing on off balance sheet partnerships with banks and larger financial institutions. The company has around five live off balance sheet partnerships, with an first-loss-default-guarantee (FLDG) arrangement and is in a process to increase the same. While the company’s primary focus is on the off-balance sheet book, on-book resources will help the company in faster turn-around and better approval rates of the loans for the partner institutes and platforms CRISIL Ratings notes that the company is in talks with a few banks to access funds, which will diversify the lender base of the group. Nevertheless, the same needs to be seen, therefore, the ability of the company to diversify its resource profile and bring down its borrowing cost will remain a key monitorable. 

 

• Nascent stage of operations

Stage of operation of Eduvanz is, currently, nascent. While the company has witnessed a year-to-date growth of ~111%, the same has been on a small base. As on December 31, 2021, the AUM of the company remains at Rs 288 crore as against Rs 137 crore as on March 31, 2021 and Rs 64 crore as on March 31, 2020. Nevertheless, the company has made investments in required infrastructure and manpower for the growth and the scale-up in the AUM.

 

The asset quality in terms of 90+ dpd on AUM witnessed an inch-up during the second wave of covid-19 pandemic. The 90+ dpd increased to 4.4% as on March 31, 2021 from 0.3% as on March 31, 2020. With economic activities picking up, the company’s 90+ dpd improved to 3.1% as on December 31, 2021 and further to 2.8% as on February 28, 2022. Also, the company has done minimal write-offs so far with restructured advances also being negligible. However, as the substantial scale up in loan book has happened in the last 12-18 months, the seasoning of the loan book remains limited.

 

Nevertheless, Eduvanz has put in place the required risk management systems and policies using technology for underwriting the loans. The company has a proprietary business rule engine for the assessment of each application based on the institute, course and the borrower background. Further, the company has a well-diversified portfolio.

 

Ability of the company to manage its collections as well as asset quality metrics as the portfolio scales up will remain a key monitorable.

Liquidity: Adequate

Eduvanz has total liquidity in the form of cash and cash equivalents, and fixed deposits of Rs 52.65 crore as on January 31, 2022 as against the total debt repayment obligation of Rs. 20.73 crore over the next three months. 

Outlook: Stable

CRISIL Ratings believes Eduvanz will maintain its adequate capitalisation metrics over the medium term. However, asset quality performance will need to be demonstrated over time and profitability is likely to remain low due to high operating expenses and borrowing costs.

Rating Sensitivity factors

Upward factors

• Improvement earning profile with the company reporting RoMA greater than zero on a sustained basis.
• Increase in scale of operations while maintaining adequate asset quality

 

Downward factors

• Any significant deterioration in asset quality leading to a substantial impact on the earnings profile
• Deterioration in capitalisation metrics with gearing increasing above 4 times on steady-state basis

About the Company

Eduvanz is registered as an NBFC with Reserve Bank of India. It was incorporated in December 2016. It operating in the fintech space with a focus on learners seeking financial assistance for courses and other ancillaries related to education and learning. It helps learners discover and finance their learning & career goals with fast, convenient, and financing solutions. Eduvanz aims to offer convenient and flexible financial assistance to students and working professionals who want quick results on loan approval and better customer services. It also has incorporated three subsidiaries for diversification of business, however, their operations will support the Eduvanz’s key focus area of learners.

 

The company was founded by Mr. Varun Chopra (CEO), who has over 15 years of experience in debt, equity and change initiatives across investment banking, consulting and outsourcing industries.  The other co-founder is Mr. Raheel Shah, a graduate from IIM Ahmedabad, who has an overall experience of around 15 plus years work experience across diverse industries including education and consulting firms. Eduvanz works on a B2B2C model, wherein the company has tied up with multiple institutes offering K12 and vocational courses to offer unsecured loan products that can be availed through a quick and easy online process. The company has developed its own proprietary algorithm basis which it underwrites all the loan application.

 

The company provides unsecured loans to the learners. These loans are further divided into three types – interest-bearing, subvention/ discount, and hybrid and this largely depends upon the company's comfort on the institute or course being financed. However, the company has entered into principal and profit protection agreement with various institutes. As on December 31, 2021, 37% of the advances were secured under these agreements. Eduvanz enters into such agreements where there is no proven track record of the institute or the course offered is relatively new and it is difficult to assess the placement record/response of students for that course. As on December 31, 2021, Eduvanz had total AUM) of Rs 288.4 crore, out of which 38% is on-book and the rest is off book. The company plans to operate asset light model and keep 70% of the AUM under off balance sheet model.

 

The products of Eduvanz are classified into three segments: Discount, Interest bearing and hybrid. In Discount (67% of the AUM as on December 2021) product, there is an interest subvention by the partner institutes and platform and the borrower gets the no-cost EMI for the course. In interest bearing, there is no subvention by the partner institutes and platform, hence the borrower has to bear the interest burden of the loan. Under hybrid, there is partial interest subvention by the partner institutes and platform and rest of the interest is paid by the borrower. Average internal rate of return (IRR) on the loans of Eduvanz is around 18-20% with an average ticket size and average tenor of around Rs 2-3 lakh and 12-24 months, respectively.

 

The company reported a loss of Rs 11.8 crore on a total income of Rs 17.4 crore for the nine months ended fiscal 2022, as against, Rs 10.5 crore and Rs 14.3 crore, respectively, for fiscal 2021.

Key Financial Indicators

As on/for the period ending	Unit	Dec 2021	Mar 2021
Total assets	Rs crore	210.7	97.8
Total assets under management (including off balance sheet)	Rs crore	288.4	136.6
Total income	Rs crore	17.4	14.3
Profit after tax	Rs crore	-11.8	-10.5
90+ dpd on AUM	%	3.1	4.4
Adjusted gearing*	Times	0.8	2.6
Return on managed assets	%	-10.2	-15.0

*Gearing is adjusted for the intangible assets on the balance sheet.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs. Cr)	Complexity levels	Rating outstanding with outlook
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	100	NA	CRISIL BBB-/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Eduvanz Financing Private Ltd	Full	Parent
Eduvanz Payments Private Ltd	Full	Subsidiary
Educred Technologies Private Ltd	Full	Subsidiary
Eduvanz Credit Finance Private Ltd	Full	Subsidiary