| Eduvanz Financing Private Limited | ||||
| 'CRISIL BBB-/Stable' assigned to Non Convertible Debentures | ||||
| Rating Action | ||||
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| 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 60 crore non-convertible debentures of Eduvanz Financing Pvt Ltd (Eduvanz) and reaffirmed the ‘CRISIL BBB-/Stable’ rating on the long term bank facilities and existing debt instruments.
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 and moderate scale of operations with limited track record.
Eduvanz is a non-banking finance company (NBFC) operating in the 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 it partners with learning institutes and platforms to offer financing solutions to students and individuals for the courses. Thus, the customer acquisition of Eduvanz is primarily via these partner institutes and platforms. It has now launched a new platform called Wizr, which will be B2C, giving direct access to students.
Eduvanz has identified off-balance sheet partnerships to be its key strategy and intends to keep the balance sheet light. The company had total assets under management (AUM) of Rs 579 crore as on June 30, 2023 (Rs 569 crore as on March 31, 2023). However, the share of off-balance sheet book reduced from 62% to 36%, on the back of reduction in business with partners considering digital lending and revised first loss default guarantee (FLDG) guidelines. However, the company is in the process of streamlining the aspects around FLDG, pricing and other aspects. It continues to have off-balance sheet partnerships with three lenders and is in advanced stages of discussion with a few banks for similar partnerships. Hence, the share of off-balance sheet book should increase again going ahead.
The loans of the company are primarily unsecured in nature, but it has an arrangement for 26% of the portfolio as on June 30, 2023, for some recourse from partner institutes and platforms, in case the borrower defaults. The company also recently diversified into education-related ancillary products wherein the company finances laptops, tablets, two-wheelers, among other products. Furthermore, the company has been scaling up the business by launching new platforms such as a career building page and Wizr to diversify its sources of revenue.
Eduvanz has put in place the required systems and processes for underwriting as well as collections of its loans. Furthermore, the end use of funds has been defined as the company directly transfers the amount to partners, minimising frauds at the borrower level. Nevertheless, on account of the second wave of the Covid-19 pandemic, it witnessed an increase in delinquencies with 90+ days past due (dpd) increasing to 4.4% as on March 31, 2021. While it has improved to 2.7% as on March 31, 2022, it inched up to 5.1% in March 31, 2023 and 5.6% in June 30, 2023. The company had negligible restructuring as on June 30, 2023. Its ability to maintain asset quality as the portfolio scales up will remain a key monitorable. |
Analytical Approach For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of Eduvanz and its subsidiaries, Eduvanz Innovation Pvt Ltd (formerly known as Eduvanz Payments Pvt Ltd), Educred Technologies Pvt Ltd and Eduvanz Credit Finance Pvt 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:
Since inception, the company has raised a total equity capital of around Rs 250 crore from marquee investors such Sequoia Capital and Unitus Capital, out of which Rs 104 crore was raised in fiscal 2023 and Rs 100 crore was raised in fiscal 2022. As on June 30, 2023, the reported networth of the company was Rs 171 crore with gearing of 1.5 times (networth of Rs 178 crore with gearing of 1.4 times as on March 31, 2023). The company is expected to follow an asset light model with 30% of the AUM being on-balance sheet, which should reduce capital requirement for the business. However, the planned capital raise of Rs 50 crore by January 2024 will be critical from the perspective of loss absorption, growth and liquidity.
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 and platforms. It also has ratings on the performance of the courses. The same data is used for underwriting of the loans. It helps Eduvanz in taking informed decisions on the underwriting and provides better approval rates for the courses, thereby strengthening its relationships with partner institutes and platforms. Furthermore, the company has end-to-end digital onboarding of the customer allowing it to take 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.
Now the company has set up a platform called Wizr, which is a marketplace for various courses. It gives Eduvanz direct access to students, helping further grow its business.
However, the ability to scale up operations in a profitable manner needs to be demonstrated.
Weaknesses:
Owing to nascent stage of operations, operating expenses remained high due to heavy investments in setting up technology infrastructure and hiring of several employees at the senior management level. Consequently, despite healthy net interest margins (NIMs) of 2.1%, the company is yet to break even, which is reflected in loss of Rs 7.7 crore for the quarter ended June 30, 2023, against a loss of Rs 42.6 crore for fiscal 2023. While operating expenses have come down to ~8% (annualised) of average managed assets for the quarter ended June 30, 2023, as against ~9.8% of average managed assets for fiscal 2023, it still remains elevated. Owing to high reliance on technology for its processes, the company is expected to achieve operating efficiencies and hence operating expenses are expected to moderate gradually over the medium term.
However, the loan book is not yet seasoned. Therefore, the ability of the company to scale up the book while controlling credit costs and improving operating efficiency will remain a key monitorable.
The resource profile of Eduvanz is concentrated with over 95% of the on-book resources from NBFCs or financial institutions while funding from banks is currently limited. While out of total borrowings of Rs 258 crore in fiscal 2023, the company raised Rs 28 crore via bank loans, in the first half of fiscal 2024, no fresh borrowings were done from banks (out of total borrowings worth Rs 108 crore). Consequently, the funding cost continues to be high at 12-13%. Aside from pursuing bank funding, the company has also been focusing on off-balance sheet partnerships with banks and larger financial institutions. The company has around three live off-balance sheet partnerships, with a FLDG arrangement. While the company’s primary focus, going forward, will be on the off-balance sheet book, on-book resources will help the company in faster turnaround and better approval rates of the loans for 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 ability of the company to diversify its resource profile and bring down borrowing cost will remain a key monitorable.
The company is in nascent stage of operations. While it grew ~55% during fiscal 2023, it was on a small base. The disbursements have slowed in the first half of the current fiscal. As on June 30, 2023, the AUM of the company was Rs 578 crore against Rs 569 crore as on March 31, 2023 and Rs 367 crore as on March 31, 2022. The company has made investments in required infrastructure and manpower for planned scale-up in the AUM.
The asset quality deteriorated with 90+ dpd increasing to 5.64% as on June 30, 2023, from 5.10% as on March 31, 2023, due to increase in delinquencies in the K-12 segment. The company has done minimal write-offs so far with restructured advances also being negligible.
Nevertheless, Eduvanz has put in place the required risk management systems and policies using technology for underwriting loans. The company has a proprietary business rule engine for the assessment of each application based on the institute, course and borrower background. Furthermore, it has a well-diversified portfolio across customer segments and partner institutes.
The company’s ability to manage its collections as well as asset quality metrics, both as the portfolio scales up and seasons, will remain a key monitorable. |
Liquidity : : Adequate The company has cash and bank balance of Rs 15.8 crore as on September 30, 2023. It has scheduled collections worth Rs 132 crore till March 31, 2024. Against this, the expected outflow is of Rs 156 crore. In this context, the planned capital raise of Rs 50 crore by January 2024 will be a key monitorable. |
Outlook Stable CRISIL Ratings believes Eduvanz will maintain 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:
Downward factors
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About the Company Eduvanz is registered as an NBFC with the Reserve Bank of India. It was incorporated in December 2016. The company operates in the fintech space with a focus on learners seeking financial assistance for courses and other ancillaries related to education and learning. They help learners discover and finance their learning and career goals with fast and convenient financing solutions. Eduvanz aims to offer convenient and flexible financial assistance to students and working professionals who want efficient loan approval processes and good customer service. The company has also incorporated three subsidiaries for diversification of their business which will complement Eduvanz’s key business niche as an education service provider.
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 overall experience of around 15 years 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 loan applications.
The company provides unsecured loans to learners. In some cases, the company has entered into principal and profit protection agreements with various institutes. As on June 30, 2023, 26% of the advances were secured under these agreements. Eduvanz enters agreements where there is no proven track record of the institute, or the course offered is relatively new and is difficult to assess the placement record and response of students for that course. As on June 30, 2023, Eduvanz had total AUM of Rs 579 crore, out of which 36% is off-book and the rest is on book. The company plans to operate an asset light model and keep 70% of the AUM under the off-balance sheet model.
The loan portfolio is further divided into three types – interest-bearing, subvention/ discount, and hybrid, and this largely depends upon the company's comfort with the institute or course being financed. Discount products (62% of the AUM as on June 30, 2023), comprise an interest subvention by partner institutes and platforms and the borrower avails a no-cost EMI for the course. In the interest bearing category, there is no subvention by the partner institutes and platforms, hence the borrower has to bear the interest burden of the loan. Under hybrid, there is partial interest subvention by the partner institutes and platforms and rest of the interest is paid by the borrower. Average ticket size and average tenor of loans is Rs 1-5 lakh and 12-24 months, respectively.
The company reported a loss of Rs 7.7 crore on a total income of Rs 14.7 crore in the quarter ended June 30, 2023 against a loss Rs 42.6 crore and income of Rs 52.3 crore for fiscal 2023. |
Key Financial Indicators
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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 – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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Criteria Details
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