Rating Rationale
May 02, 2018 | Mumbai
Indel Money Private Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.60 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL BBB-/Stable' rating on the bank facilities of Indel Money Private Limited (Indel Money's).
 
The rating reflects Indel Money's experienced management, adequate capitalisation and sound asset quality in gold loan segment. These strengths are partially offset by the company's improving but below-average earnings, increasing exposure to vulnerable segment and geographically concentrated revenue. The company strengthened its board and senior management team during fiscal 2018 and will benefit on account their diverse industry experience. Capitalisation continues to be adequate and gearing is likely to be 3.5 times over the medium term. The company has also maintained sound asset quality with gold loan collections of around 80% within 6 months of disbursement. However, Indel Money's profitability though improving is below-average. Further, the company will increase its exposure to vulnerable segment where the credit profile of borrowers is relatively weak.  Also, operations will remain concentrated in Tamil Nadu and Kerala.

Key Rating Drivers & Detailed Description
Strengths
* Experienced management team
The chairman and managing director Mr Mohanan Gopalakrishnan has over 20 years of experience in banking and financial services. The promoter-director Mr Umesh Mohanan, an investment professional, has vast experience. Further the company has strengthened its board and senior management team with the addition of Mr N S Venkatesh and Mr C V Shankar as independent directors and Mr Jagadeesh Rao as chief executive officer. Indel Money will benefit on account of the experienced senior management team.
 
* Adequate capitalisation
Capitalisation will remain adequate for the current and expected scale of operations. Promoters have infused around Rs 56 crore of equity capital over the three fiscals ended March 31, 2018. Networth was Rs 74.7 crore and gearing comfortable at 1.5 times as on March 31, 2018. Gearing is expected to be at 3.5 times over the medium term.
 
* Sound asset quality in gold loan segment
Asset quality is comfortable, backed by focus on collections and portfolio monitoring along with good systems and processes. Indel Money has established good operational systems and processes beginning with gold assessment till the gold ornament is returned on repayment of loan. It monitors the portfolio on monthly basis on a mark to market foundation and focuses on interest collection and reduction of risky portfolio. Over 80% of the principal gets repaid within 6 months of disbursement.  Though the company will increase its exposure to MSME and trader loan segment, gold loan will remain at 65% of its overall assets under management (AUM) over the medium term. The ability of the company to maintain sound asset quality in non-gold loan segment will remain a monitorable. 
 
Weaknesses
* Improving but below average earnings
Indel Money started making profits during fiscal 2017, however profitability has not improved materially. The net profitability margin remains negative 2.4% for fiscal 2018 improved from negative 5.3% during fiscal 2017. This is mainly on account of higher operating cost. Most of the branches are yet to generate enough business to contribute to profitability. The average per branch AUM has increased marginally to Rs 88 lakh as on December 31, 2017 from Rs 64 lakh as on September 30, 2016. The operating cost has also increased on account of the increased focus on non-gold loan segment. The company has created a separate team of credit and risk team, while increasing the marketing team.  The return on assets (ROA) for fiscal 2018 increased to 0.6% as against the earlier expectation of around 1.5%. ROA is expected to remain at 1.0 - 1.2% during fiscal 2019.
 
* Increasing exposure to vulnerable segment
The company has also been increasing its exposure to borrowers with weak credit profile such as small traders, and self-employed small businessman in MSME segment. With weak credit profiles, limited documented income and no easy access to formal credit, the borrowers are susceptible to any unforeseen event that can affect their cash flow and repayment capacity. Though, majority of the loans are also backed by property collateral assessment of the borrowers, cashflow is critical. The ability of the company to scale up the loan portfolio while maintaining low delinquencies in this segment is yet to be tested and will remain a monitorable.
 
* Geographic concentration in revenue
The company mainly operates in Tamil Nadu and Kerala with around 130 branches. It plans to open 5-10 branches in Mumbai, Chennai and Bengaluru during the current fiscal. Though  revenue profile remains largely concentrated in gold loan, the contribution from other products will increase gradually. The portfolio also remains small as compared to other CRISIL rated players in the gold loan segment with gold loan AUM of Rs 138 crore as on March 31, 2018.
Outlook: Stable

CRISIL believes that Indel Money will, maintain adequate capitalisation, sound asset quality and benefit on account of it experienced senior management team over the medium term. The outlook may be revised to 'Positive' if the company substantially improves its competitive position, earnings, and resource profile. The outlook may be revised to 'Negative' if asset quality weakens and thereby deteriorates earnings profile and capitalisation.

About the Company

Indel Money, a non-deposit-taking non-banking financial company, was incorporated in 1986 as Payal Holdings Pvt Ltd. The promoter's acquired and renamed this company in July 2012 and January 2013, respectively. Indel Money primarily extends loans against gold jewellery; the company also operates in the trader's loan, business loans, loan against property, vehicle loans, and money transfer segments.
 
Indel Corporation the holding company is promoted by Mr Mohanan Gopalakrishnan and his son, Mr Umesh Mohanan. Indel Corporation operates in segments such as hospitality, real estate, and media and communication, among others, through various companies.

Key Financial Indicators
Particulars March 31 Unit 2018 2017
Total Assets Rs crore 194 129
Total Income Rs crore 31 23
Profit after tax Rs crore 1.0 0.4
Gross NPA % - -
Gearing Times 1.5 0.7
Return On Assets % 0.6 0.3

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Cr) Rating Assigned with Outlook
NA Cash Credit NA NA NA 15.25 CRISIL BBB-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 44.75 CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  60.00  CRISIL BBB-/Stable      09-02-17  CRISIL BBB-/Stable  31-12-16  CRISIL BBB-/Stable  05-08-15  CRISIL BB/Stable  CRISIL B+/Stable 
                20-12-16  CRISIL BBB-/Stable  13-07-15  CRISIL BB/Stable   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 15.25 CRISIL BBB-/Stable Cash Credit 15.25 CRISIL BBB-/Stable
Proposed Long Term Bank Loan Facility 44.75 CRISIL BBB-/Stable Proposed Long Term Bank Loan Facility 44.75 CRISIL BBB-/Stable
Total 60 -- Total 60 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies

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