| Incred Financial Services Limited | ||||||||||||||
| Ratings reaffirmed at 'CRISIL PPMLD A+/Stable , CRISIL A+/Stable/CRISIL A1+'; rated amount enhanced for Commercial Paper | ||||||||||||||
| 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 reaffirmed its 'CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’ ratings on the long-term bank facilities and debt instruments of Incred Financial Services Limited (Incred).
CRISIL Ratings has also withdrawn its rating on Non-Convertible Debentures of Rs.202.13 crore and Long-Term Principal Protected Market Linked Debentures of Rs 112.4 crore (See annexure 'Details of Rating Withdrawn') as CRISIL Ratings has received independent confirmation that these instruments have been redeemed. The withdrawal is in line with CRISIL Ratings withdrawal policy.
The ratings continue to factor in Incred’s strong capital position backed by a high pedigree investor base, as reflected by a networth base of Rs 2,484 crore, thus leading to a comfortable leverage profile of 1.6 times as of March 31, 2023. The company’s earnings profile has also improved evidenced by a rising return on managed assets (RoMA) of 2.2% for fiscal 2023, albeit operating expenses remain elevated. The rating also factors in steady improvement in Incred’s asset quality metrics with a reduction in the level of stressed assets. Gross non-performing assets (GNPAs) stood at 2.1% as on March 31, 2023 (2.8% as of March 31, 2022) whereas net non-performing assets (NNPA) stood at 0.9% on the same date.
The company also benefits from its experienced leadership team and diversified loan portfolio. These strengths are partially offset by the moderate scale of operations, unsecured nature of majority of the loan portfolio and moderate asset quality.
Having commenced operations in February 2017, Incred has built a diversified portfolio with assets under management (AUM) of Rs 6,062 crore as on March 31, 2023. The company provides a wide range of loan products that include personal loans, small and medium enterprise (SME) business loans, education loans, school financing loans and loans to financial institutions (FIs). After the amalgamation, erstwhile KKR India’s wholesale lending book has also become a part of the overall AUM of Incred. However, this book presently forms 2% of the AUM and, is expected to run down fully in the near to medium term |
Analytical Approach For arriving at the rating, CRISIL Ratings has evaluated the business, financial, and management risk profile of Incred, factoring in the changes post implementation of the corporate scheme of arrangement. |
Key Rating Drivers & Detailed Description Strengths:
Incred is well-capitalised with networth of Rs 2,484 crore and a comfortable gearing of 1.6 times as on March 31, 2023. This marks a significant improvement from Rs 595 crore of networth as on March 31, 2019. The company commenced its operations with a networth of around Rs 500 crore, mainly contributed by the founder’s company – Bee Finance Ltd (Mauritius). Incred initially raised optionally convertible debentures (OCDs) in fiscal 2017, and converted them to equity in fiscal 2019 (April 2018) amounting to the tune of Rs 116 crore from Investcorp (IDFC Private Equity) and Paragon Partners. Furthermore, during April and May 2019, Incred raised compulsorily convertible preference shares (CCPS) of Rs 427 crore from institutional investors such as FMO (the Netherlands Development Finance Company), OAKS Asset Management (Formerly known as Alpha Capital), Moore Strategic Ventures, and Elevar Equity. Most recently, the company’s networth increased from Rs 1,112 crore on March 31, 2022, to Rs 2,300 crore as of September 30, 2022 – benefitting from the implementation of the scheme of corporate reorganization and internal accretions. CRISIL Ratings believes Incred’s capital position will remain comfortable with regards to its scale and nature of operations, supported by its demonstrated ability to raise capital from existing as well as new investors.
Incred was promoted in 2016, by Mr Bhupinder Singh, Whole Time Director and Chief Executive Officer. Having been associated with Deutsche Bank with his last stint as head of the Corporate Finance division and the co-head of the Fixed Income, Equities and Investment Banking divisions for the Asia Pacific region, Mr Singh has a professional experience of over two decades. Over its operating history, the company’s senior management team has gained strength, and now comprises renowned professionals from various industry sections.
Mr Vivek Bansal, Incred’s Chief Financial Officer (CFO), has experience of two decades, which include leadership stints in Fidelity Investments (London) and Standard Chartered (Mumbai). Prior to Incred, Mr Bansal served as deputy CFO of YES Bank and Group Head of Finance. Mr Ashwin Sekar, who is the Chief Product and Technology Officer, had been associated with companies such as Gain Credit for over 13 years. The business side is headed by Mr. Saurabh Jhalaria who has almost 20 years of work experience and was earlier Managing Director – Singapore operations at Deutsche Bank.
Mr Prithvi Chandrasekhar (Head of Risk Analytics and PL business), has held various positions across several companies, including Capital One and McKinsey over a professional stint of over 25 years.
Mr. Krishna Bahety (Chief Risk Officer) has over 22 years of experience in credit risk management, underwriting, process control, portfolio management and risk analysis across multiple product verticals. Prior to Incred he was with Udaan as Head of Policy responsible for various policy development and implementation. This team of senior executives reports to a board comprising veterans from the financial services industry. These include independent directors, nominee directors from investor bodies and a few representatives from the senior management team of Incred.
InCred had a diversified loan portfolio of Rs 6,062 crore as on March 31, 2023, which marks an annual growth of 58%. The growth during the period was driven by growing retail personal loan and education loan portfolio. As on March 31, 2023, the AUM mix consisted of personal loans (42%, including co-lending portfolio), student loans (17%), lending to NBFCs (10%), anchor & escrow backed business lines (21%) and secured school financing & LAP (8%). Apart from these, erstwhile KKR India’s wholesale portfolio also constituted 2% of the AUM. This book is spread across 2 group accounts and is expected to run down in the near to medium term.
In the initial phase of erstwhile Incred Financial Services Ltd, growth in the loan portfolio was driven by higher focus on wholesale segments such as supply chain financing and lending to financial institutions and escrow-backed lending which, which cumulatively formed 76% of the total loan book as on June 30, 2017. These segments were followed by unsecured business loans, which formed another 18% of the loan portfolio with slightly higher degree of granularity. However, eventual growth corresponded with diversification across asset segments with more focus on retail loans. Thereafter, the company ventured into segments such as personal loans and two-wheeler loans, and also tapped the niche segment of education loans via student loans and secured school funding. Over time, concentration around wholesale segments has reduced and the loan book has diversified across retail segments. Presently, 98% of AUM is composed of retail secured and unsecured loans.
Also, given low correlation between these segments, CRISIL Ratings believes that the diversified loan portfolio supports the overall business profile, especially in case of stress in any one segment.
Weaknesses:
Owing to its nascent scale of operations, operating expenses for Incred, though correcting, have remained high attributed to support costs, employee and technology-linked expenses. Furthermore, on-boarding of senior management to lead respective asset segments has also contributed to the high employee expenses. Over the past five fiscal years, operating expenses for Incred has remained elevated in the range of 5-6% (adjusting for one-time business expenses).
For fiscal 2022, the company reported an annualized return on managed assets (RoMA) of 1.1% corresponding to a net profit of Rs 36 crore. After adjusting for non-cash ESOP expenses, demerger related legal expenses incurred and net charge on P&L due to sale of two-wheeler portfolio, the annualized RoMA for the period was about 1.6%. Thereafter, for fiscal 2023, overall profitability has improved gradually with Incred reporting a net income of Rs 121 crore supported by rise in share of higher yielding loan portfolio and minimal credit costs during the period, thus translating into a RoMA of 2.2% for fiscal 2023.
Given the provisioning policy, coupled with sustained focus on tightening costs and operating expenses, CRISIL Ratings expects Incred’s profitability to sustain at levels higher than that seen in the past in normal course of business. However, Incred’s ability to scale up the portfolio, enhance recoveries and improve profitability while keeping credit costs low, will be a key rating sensitivity factor.
Given the relatively short track record of operations and low, though increasing, seasoning in the loan portfolio, asset quality of the book remains untested. As on March 31, 2023, gross NPA (GNPA) of the overall loan portfolio of Incred remained comfortable while improving gradually to 2.1%, as compared to 2.8% during last fiscal. The NPA metrics were impacted during the pandemic albeit improving collections have supported the improvement in the asset quality metrics.
In terms of collections, when calculated after giving benefit of over-dues, collection efficiency of the overall book was around 98%. Going forward, the company’s ability to scale up operations, while maintaining asset quality and profitability at adequate levels amidst business challenges, will be key rating sensitivity factors.
As on March 31, 2023, Incred’s AUM stood at Rs 6,062 crore, as compared to Rs 3844 crore as on March 31, 2022, registering a growth of 58% over the twelve-month period. However, the AUM is spread across seven asset classes. While this gives Incred the benefit of diversity, scale of operations and market position remains moderate within each asset class. As the portfolio continues to gain vintage, the company’s ability to profitably scale the portfolio across diverse segments remains to be demonstrated. |
Liquidity: Adequate As on March 31, 2023, the company had liquidity balance of Rs 744 crore (includes cash and equivalents, undrawn cash credit lines and excludes committed bank lines, any upcoming collections). This balance covers the estimated outflow towards debt obligations and operating expenses scheduled for the succeeding 3 months, by 1.02 times |
Outlook: Stable Incred is expected to maintain adequate capitalisation and diversity in its lending portfolio. The company will also continue to benefit from the extensive experience of its leadership. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company The erstwhile Incred Financial Services Ltd (now renamed as Incred Prime Finance Ltd) was a non-deposit taking, non-banking financial company headquartered in Mumbai. Incorporated in January 1991 as Visu Leasing and Finance Pvt Ltd (VLFL), this company was acquired by Incred in 2016, after which, its name was changed to reflect the Incred brand. Having started its operations in February 2017, Incred is a new-age financial services platform that leverages technology and data science, throughout its lending chain, thereby reducing the turnaround time.
On March 31, 2023, the company had a diversified AUM of Rs 6,062 crore which includes the effect of corporate reorganization with erstwhile KKR India Financial Services. KKR India was a non-deposit taking, systemically important, NBFC, engaged in providing structured funding, promoter financing, and mezzanine financing, commenced operations in October 2009. Prior to the corporate reorganization, KKR Capital Markets India Private Limited held 100% stake in KKR India. The current Incred Financial Services Ltd refers to the merged entity. |
Key Financial Indicators
^includes the amalgamation impact of InCred Housing Finance Private Limited | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Yet to be issued
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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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