Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL A+/Stable’ rating to Rs.300 crore non convertible debentures of Incred Financial Services Limited (Incred). CRISIL Ratings has also reaffirmed its rating on the bank loan facilities and existing debt instruments at ‘CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’.
Consequent to redemption and receipt of requisite documentation, CRISIL Ratings has also withdrawn its rating on Long-Term Principal Protected Market Linked Debentures of Rs.38.9 crore (See ‘Annexure - Details of Rating Withdrawn'). CRISIL Ratings has also withdrawn its ratings on Incred’s proposed long-term bank loan of Rs 2500 crore and proposed non-convertible debentures facilities of Rs 100 crore, basis Incred’s request and receipt of requisite documentation for the same. The withdrawal is in line with CRISIL Ratings’ rating withdrawal policy.
The ratings continue to factor in Incred’s strong capital position backed by a high pedigree investor base, experienced leadership team and diversified loan portfolio. These strengths are partially offset by Incred’s moderate scale of operations within product segments, modest earnings profile, though improving, unsecured nature of majority of the loan portfolio and moderate asset quality in some of the product segments.
Incred’s capital position is supported by a networth base of Rs 2,548 crore, thus leading to a comfortable leverage of 1.5 times as of June 30, 2023. The company’s earnings profile has also improved evidenced by a rising return on managed assets (RoMA) of 3.5% (annualized) for the three-month period ending June 30, 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) and net non-performing assets (NNPA) stood at 2.1% and 0.9% as on March 31, 2023, respectively (as against 2.8% and 1.4% respectively as of March 31, 2022). However, GNPA moderated marginally to 2.4% as on June 30, 2023, on the back of interim slippages from the anchor-backed business loan segment.
Having commenced operations in February 2017, Incred has built a diversified portfolio with assets under management (AUM) of Rs 6,484 crore as on June 30, 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.
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Analytical Approach For arriving at the rating, CRISIL Ratings has evaluated the standalone 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: Strong capitalisation position supported by high pedigree of investor base Incred is well-capitalised with networth of Rs 2,484 crore and a comfortable gearing of 1.6 times as on March 31, 2023, which further improved to Rs 2,548 crore and 1.5 times respectively as on June 30, 2023, following rising positive internal accruals. This marks a significant improvement from a networth of Rs 595 crore as on March 31, 2019. The improvement stemmed primarily from the implementation of the recent scheme of corporate reorganization along with internal accretions.
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.
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.
Experienced promoters and senior management team 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 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.
Diversified loan portfolio InCred had a diversified loan portfolio of Rs 6,484 crore as on June 30, 2023, which marks an y-o-y growth of 44%. The growth during the period was driven by growing retail personal loan and education loan portfolio. As on June 30, 2023, the AUM mix consisted of personal loans (44%, including co-lending portfolio), student loans (18%), lending to FIs (9%), anchor & escrow backed business lines (19%) and secured school financing (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 past two fiscal years, retail AUM of Incred has witnessed sequential growth, with its share in total AUM increasing from ~58% as on March 31, 2021, to 82% as on March 31, 2023, with the share of unsecured personal loans , education loans and escrow backed anchor-based financing gaining traction, while the share of wholesale loan book has declined considerably from 42% as on March 31, 2021 (via school financing and lending to Fis) to 18% as on March 31, 2023, and further to 17% as on June 30, 2023. The same has been on the back of rising disbursements towards retail loan category, under which majority was via personal loans and anchor backed business loans, as it accounted for 81% of total disbursements in fiscal 2023 (84% in June 2023), as compared to 62% in fiscal 2021.
Therefore, concentration around wholesale segments has reduced over time and the loan book has diversified across retail segments.
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: Moderate earnings profile, albeit improving 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 also contributed to the high employee expenses in fiscal 2023. 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 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. End quarter June 30, 2023, on an annualized basis, RoMA for the entity improved sequentially to 3.5% during the period on the back of improving margins.
Given the provisioning policy, coupled with sustained focus on tightening costs and operating expenses, CRISIL Ratings expects Incred’s profitability to sustain at healthier levels 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.
Asset quality remains a monitorable Given the relatively short track record of operations and low, though increasing, seasoning in the loan portfolio across its multiple asset classes remains modest.
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% as on March 31, 2022, and 3.4% as on March 31, 2021. The NPA metrics were impacted during the pandemic albeit improving collections have supported the improvement in the asset quality metrics.
However, the entity witnessed marginal moderation in its asset quality metrics during the period ending June 30, 2023, with its GNPA inching up to 2.4%. In terms of collections, when calculated after accounting for 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 will be key rating sensitivity factors.
Modest scale of operations and market position with limited seasoning As on June 30, 2023, Incred’s AUM stood at Rs 6,484 crore, 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. Therefore, 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 August 31, 2023, the company had liquidity balance of Rs 264 crore (includes undrawn bank lines amounting to Rs 114 crore). Also, as per its ALM statement dated June 30, 2023, Incred has positive cumulative mismatches across all time buckets, with debt obligations for the next three months amounting to Rs 685 crore, against which Incred had projected asset inflows of Rs 1,018 crore. |
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 #annualised | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Criteria Details
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