Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable’ rating on the debt instrument and bank loan facilities of Indel Money Limited (Indel Money; erstwhile Indel Money Private Limited).

 

The rating continues to reflect the extensive experience of the promoters and the top management team, the company's adequate capitalisation and sound asset quality. The strengths are partially offset by modest, albeit improving, earnings and geographical concentration in operations.

 

As far as liquidity position is concerned, the company has a policy of typically maintaining a liquidity cover of 1 time for debt obligations arising over next 1 month, in addition to the sanctions under pipeline. As on July 31, 2021, Indel Money had overall free liquidity of Rs 61.5 crore in the form of cash and cash equivalents. Against this, the company had total debt repayment obligation of Rs 45.5 crore over next two months. As a policy, promoters review liquidity and debt repayment position on weekly basis and accordingly takes call on incremental disbursements.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of Indel Money

Key Rating Drivers & Detailed Description

Strengths:

* Experienced promoters and management team

The extensive experience of the promoters and senior management team, with the addition of independent directors, should continue to support the business. Mr. Mohanan Gopalakrishnan (chairman and managing director) was a banking professional with more than 37 years of experience in the Gulf Cooperation Council (GCC). He was also the head of trade finance operations of United Arab Bank for a span of 11 years commencing from 2001. Mr Umesh Mohanan (executive director and CEO) handled a Middle Eastern conglomerate, spearheading its global operations for 12 years till 2016. Apart from the promoter directors, the board members of IMPL consists of prominent independent directors such as Mr N S Venkatesh (CEO of Association of Mutual Funds in India), Mr C R Sasikumar (former Managing Director of State Bank of Travancore), Mr S Ganesh(former principal chief general manager of RBI), Anantharaman T R (CA) & Mr. Salilvenu (Admin Professional).

 

* Adequate capitalisation

Capitalisation should remain adequate for the current and expected scale of operations. Networth was Rs 94 crore and gearing 4.3 times as on June 30, 2021, compared with Rs 89 crore and 4.1 times, respectively, as on March 31, 2021. The capital position has been adequate despite internal accrual being relatively low, and is expected to benefit from steady accretions over the medium term with sustained improvement in profitability. Nevertheless, with increasing scale of operations, the gearing is expected to remain high at 5.5-6.0 times over the medium term. Any increase in gearing beyond the committed threshold will be a key rating sensitivity factor.

 

* Sound asset quality in the gold loan segment

Asset quality is comfortable, backed by focus on collection and portfolio monitoring along with well-managed systems and processes. The company monitors the portfolio monthly on a mark-to-market basis and focuses on interest collection and reduction of the risk portfolio. Gross non-performing assets (GNPAs) were around 0.94% as on June 30, 2021, against 0.40% as on March 31, 2021. While the asset quality has remained stable, CRISIL Ratings will continue to monitor it closely. Ability to steadily increase collections to the pre-pandemic level is a key monitorable. 

 

Weakness:

* Modest, albeit improving, earnings

Indel Money started reporting profits only from fiscal 2017 and had modest RoA of 0.3-0.8% over the four fiscals through 2020. While the company has scaled up operations substantially, earnings (both in terms of absolute profits and RoA) are lower than that of large gold loan financiers. Profitability was affected primarily by high operating expenses as expansion in the gold finance segment in the past three years led to high establishment expenses (mainly for setting up branches).

 

Nevertheless, with improvement in scale of operations, the profitability has also shown steady improvement. During fiscal 2021, the company reported PAT of Rs 9.5 crore with RoA of 2.2% as compared to a PAT of Rs 2.3 crore and RoA of 0.7% during fiscal 2020. The company reported a PAT of Rs 5.0 crore and RoA of 4.0% during the first quarter of fiscal 2022. As far as cost of borrowing is concerned, the company has largely been reliant on raising funds from NBFCs. However, the company was able to on-board few banks primarily State Bank of India during recent period. The average cost of borrowing on incremental basis stood at around 12.7% during the first quarter of fiscal 2022.  In terms of operating expense, the company has been able to reduce to less than 10% i.e. 8.6% during the first quarter of fiscal 2022 (10.3% during fiscal 2020). With further improvement in scale (primarily in newer branches), the operating expense is expected to stabilize in range of 8%-9% over medium term. CRISIL Ratings overall believes that as the portfolio scales up, ability to raise resources at competitive costs will be key for further improvement in earnings profile. Additionally, ability to manage asset quality, and therefore, credit costs will also be a key determinant of profitability over the medium term.

 

* Geographic concentration in operations

The company has 191 branches, with operations concentrated in Tamil Nadu (45%), Kerala (28%) and Karnataka (25%) as of June 30, 2021. The company also has presence in Andhra Pradesh and Telangana. Given the company’s established presence in southern India, operations are not expected to diversify materially over the medium term. The company will focus on increasing its scale primarily in Karnataka and Tamil Nadu even as it aims to diversify operations in Maharashtra and Gujarat in the coming quarters.

Liquidity: Adequate

As per the asset liability maturity profile as on March 31, 2021, the company has no negative cumulative mismatches up to 6 months. The company has a policy of typically maintaining a liquidity cover of 1 time for debt obligations arising over next 1 month, in addition to the sanctions under pipeline. As on July 31, 2021, Indel Money had overall free liquidity of Rs 61.5 crore in the form of cash and cash equivalents. Against this, the company had total debt repayment obligation of Rs 45.5 crore over next two months. CRISIL Ratings also takes comfort from articulation from promoters of providing support in form or equity or loans to Indel Money as and when required. They are planning to infuse a capital of Rs 20 crore over the next 1-2 years, Rs 10 crores by way of equity and the remaining Rs 10 crores by way of compulsorily convertible debentures. The promoters have been holding several investments through holding company ‘Indel Corporation Ltd’ (which is also holding company for Indel Money). Promoters have articulated that some of these investments can be liquidated (if needed) or funds can be generated through way of dividends. Additionally, promoters, in their personal capacity, also hold overseas investments that can be liquidated in case of any fund requirement by Indel Money. In terms of collections, Indel Money had average monthly collections of around Rs 85 crore (including prepayments) between June 2020 and July 2021. The company, therefore, also has the option to lower disbursements if required to manage repayments. As a policy, promoters review liquidity and debt repayment position on weekly basis and accordingly takes call on incremental disbursements.

Outlook: Stable

CRISIL Ratings believes Indel Money will maintain adequate capitalisation and sound asset quality and benefit from the experienced management over the medium term.

Rating Sensitivity Factors

Upward Factors

• Significant increase in earnings with RoA improving to around 2.5%
• Higher proportion of bank funding reducing the cost of borrowing to less than 12%
• Ramp-up in operations with reduction in regional concentration

 

Downward Factors

• Weakening of asset quality metrics with 90+ days past due increasing beyond 2%
• Increase in the provisioning requirement leading to pressure on profitability

About the Company

Indel Money, a non-deposit-taking NBFC, was incorporated in 1986 as Payal Holdings Pvt Ltd. It was acquired by the current promoters in July 2012 and got its present name in January 2013. Indel Money primarily extends loans against gold jewellery. It also operates in the traders’ loans, business loans, loans against property, vehicle loans, and money transfer segments.

 

Indel Corporation, the holding company, is promoted by Mr Mohanan Gopalakrishnan and Mr Umesh Mohanan. Indel Corporation operates in segments such as hospitality, and media and communication through various companies.

Key Financial Indicators

Particulars March 31	Unit	Jun-21*	2021	2020	2019
Total assets	Rs crore	527	480	378	264
Total income	Rs crore	29	94	63	43
Profit after tax	Rs crore	5.0	9.5	2.3	1.6
Gross NPA**	%	0.94	0.40	0.36	7.9
Gearing	Times	4.3	4.1	3.7	2.4
RoA	%	4.0	2.2	0.7	0.7

*Based on provisional numbers

**Based on 90+dpd, however company is allowed to follow 180+ dpd as NPA recognition in line with RBI regulations for non-systemic important NBFCs but it follows 90+dpd norms

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity Level	Rating assigned with outlook
INE0BUS07015	Non-convertible debentures	28-Jun-21	Reset rate	15-Jun-24	20	Complex	CRISIL BBB/Stable
NA	Non-convertible debenture*	NA	NA	NA	150	Simple	CRISIL BBB/Stable
NA	Cash credit	NA	NA	NA	42.50	NA	CRISIL BBB/Stable
NA	Working capital term loan	NA	9.45%	15-Apr-26	35.00	NA	CRISIL BBB/Stable

*Yet to be issued