Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB/Stable’ rating to Rs.100 crore Non Convertible Debenture (NCDs) Keertana Finserv Private Limited (Keertana). The rating on the bank loan facilities and existing non convertible debentures has been reaffirmed at ‘CRISIL BBB/Stable’.

 

The rating continue to factor in the extensive experience of the promoter in the financial services industry and its adequate capital position supported by stable accretions. These strengths are partially offset by nascent operations with concentration in portfolio and moderate resource profile.

 

The company has adequate capitalisation with networth of Rs 224 crore as of June 30, 2023 as compared to Rs 174 crore as of March 31, 2023 and the comfortable gearing of 2.8 times. Over the last 15 months, promoters have infused Rs 150 crore in fiscal 2023 and Rs 38 crore in Q1 2024. On steady-state basis, the company plans to maintain gearing at around 4 times. Company has successfully mobilised borrowings from Banks and other NBFCs and outstanding borrowing stood at Rs 625 crore as on June 30, 2023.

 

The business operations are nascent with company reporting an AUM growth of 203% in fiscal 2023 at Rs 609 crore as of March 2023 as compared to Rs 201 crore as of March 2022. Further, AUM grew to Rs 762 crore in Q1 2024. The portfolio comprises a wide range of asset classes including gold loans (55%), group loans (30%) and business loans and LAP (15%). Currently the secured portion accounts for 60% of the overall portfolio. Further, they are concentrated with 94% of the portfolio in Andhra Pradesh. Company is planning to expand its microfinance portfolio along with gold loan portfolio in fiscal 2024. CRISIL Ratings understands that the company is in the process of applying for NBFC-MFI licence to RBI for a new entity as its subsidiary in order to expand their microfinance portfolio. The company intends to focus on growth in Andhra Pradesh and Telangana over the next two years along with gradual growth in the neighbouring states – Tamil Nadu, Karnataka and Odisha. As on June 30, 2023, company has 225 operational branches while around 23 more branches are in final stages of being operationalised.

 

The company has aggressive plans to grow the loan book to Rs 1500 crore by March 2024. This will necessitate raising additional equity capital to maintain steady-state gearing levels. CRISIL Ratings believes that the promoters have the resources and financial flexibility to fund the same comfortably as evidenced by the unsecured loans infused during initial months of operations. Further, there is flexibility from the 14.08% stake in Spandana Sphoorty Financial Ltd (SSFL) held by Ms. Padmaja Reddy and family which was worth around Rs 800 crore (as per market price on August 08, 2023).

Analytical Approach

CRISIL Ratings has evaluated the standalone business and financial risk profile of Keertana.

Key Rating Drivers & Detailed Description

Strengths:

Adequate capitalisation

Keertana’s capital position is adequate in relations to the scale of operations. As of June 30, 2023, company has networth of Rs 224 crore and gearing of 2.8 times as compared to networth of Rs 174.3 crore and gearing at 2.9 times as of March 31, 2023. Post-acquisition of the company in March 2022, the promoters, and their family has infused Rs 150 crore in fiscal 2023 and Rs 38 crore in Q1 2024. While the current gearing is low, it is expected to increase going forward as the company is targeting an AUM of Rs 1500 crore by March 2024. This will necessitate raising additional equity capital to maintain steady-state gearing levels. CRISIL Ratings believes that the promoters have the resources and financial flexibility to fund the same comfortably as evidenced by the unsecured loans infused during initial months of operations. Further, there is flexibility from the 14.08% stake in Spandana Sphoorty Financial Ltd (SSFL) held by Ms. Padmaja Reddy and family which was worth around Rs 800 crore (as per market price on August 08, 2023) which can be infused in Keertana. The capital position also remains supported by stable accretions; Keertana has shown month on month improvement in the profitability with full year Profit after tax of Rs 21.4 crore in fiscal 2023 and return on managed assets (ROMA) of 6.2%. Further during Q1 fiscal 2024, company reported a PAT of Rs 11.8 crore with RoMA of 6.0% (annualised). The gold loan business inherently benefits from higher interest spreads and lower credit costs which in-turn resulting in higher returns. Further, the company has also exposure to MFI loans and with the revised regulatory framework (de-regulation of net interest margin), company is expected to have higher margins in this portfolio as well which will support its earning profile. CRISIL Ratings, overall, believes the capital position of Keertana will remain adequate with gearing remaining below 4 times on steady state basis.

 

Extensive experience of the promoters and the board of directors

Keertana is promoted by Ms. Padmaja Reddy who has over 24 years of experience in social development and financial services industry. The promoter founded SSFL in 1998 which has grown to be the second largest NBFC-MFI (non-banking financial company/microfinance institution) in the country based on microfinance loan portfolio and the third-largest in terms of consolidated AUM (including non-microfinance loan portfolio). Besides the promoter’s robust understanding of financial product requirements for the customers in the microfinance space, the company also benefits from the experienced board which comprises professionals with diverse experience in the field of banking and financial services. The leadership team has rich knowledge of the geographies- Andhra Pradesh and Telangana where the company is current present and planning to expand its portfolio. 

 

Weakness:

Nascent operations with concentrated portfolio

As of March 31, 2023, the AUM stood at Rs 609 crore as compared to Rs 201 crore as on March 31. 2022. The AUM further grew to Rs 762 crore as of June 30, 2023. The asset under management comprises a wide range of asset classes including gold loans (55%), group loans (30%) and business loans and LAP (15%). Currently the secured portion accounts for 60% of the overall portfolio. Over the medium term, the company is planning to expand in microfinance space along with gold loan and MSME. CRISIL Ratings understands that the company is in a process of applying for NBFC-MFI licence to RBI for a new entity as its subsidiary in order to expand their microfinance portfolio. The business operations are nascent having commenced in October 2021 under Spandana Mutual Benefit Trust (SMBT). Further, they are concentrated with 94% of the portfolio in Andhra Pradesh. The company intends to continue its focus on expansion in Andhra Pradesh and Telangana region over the next two years while growing gradually in neighbouring states – Tamil Nadu and Karnataka. Gold loan business typically faces higher operational risks linked to staff fraud, loan-to-value (LTV) impact due to gold price fluctuations and timely auctions. Keertana has limited vintage of operations and hence the company’s ability to tackle these potential risks will only be evidenced with scale up of operations over a period of time.

 

Moderate resource profile

The overall resource profile remained moderate with NBFCs account for 46% of the total borrowing followed by banks at 22% and NCD at 11%. Within a short span of time, company has been able to mobilize funds from 27 lenders of which 7 are banks. The average cost of borrowing stood at around 13.9% in fiscal 2023. Going forward, company’s ability to increase share of banks in its funding profile to support its growth plans and reduce the cost of borrowing will remain key monitorable.

Liquidity: Adequate

Keertana’s asset-liability maturity profile was comfortable as on June 30, 2023, with positive mismatches across buckets up to 1 year. As on June 30, 2023, the company had liquidity of Rs 49.4 crore (including cash and cash equivalent and cash credit and working capital loan). Against this, total debt obligation (including operating expense) was around Rs 52.7 crore in July 2023 and Rs 44.7 crore in August 2023. This represents liquidity cover (assuming 90% collections) of 1.0 times for next two months. Liquidity is further supported by commitment of support by promoters at the time of exigency.

Outlook: Stable

CRISIL Ratings believes Keertana will remain adequately capitalized over the medium term with timely support from promoters.

Rating Sensitivity Factors

Upward factors

• Increase in scale of operations while maintaining steady-state gearing at below 4 times
• Increase in earnings leading to improvement in return on managed assets over 2.5% on a sustainable basis
• Track record of raising external borrowings

 

Downward factors

• Moderation in capitalisation metrics with a significant increase in gearing beyond 5 times while scaling up the portfolio.
• Any adverse movement in operating or credit costs and its consequent impact on earnings profile

About the Company

Keertana Finserv Private Limited (formerly known as Rajshree Tracom Private Limited) (“Keertana”) was incorporated as a private limited company in 1996 in Calcutta. The company remained a closely held company for twenty years till it was acquired and renamed by Ms. Padmaja Reddy with her friends and family in March 2022. The company acquired gold loans business from Spandana Mutual Benefit Trust (SMBT) and MSME business from Spandana Rural and Urban development Organisation (SRUDO).

 

The company largely focuses on gold loans and MSME loans targeting the low income and middle-income households in rural areas. As of June 30, 2023, company has 248 branches spread across 35 districts. 225 Branches are active and the remaining 23 Branches have branch furnishing work in progress. The company has an outstanding AUM of Rs 762 crore with gold loans accounting for 55% of the portfolio.

Key Financial Indicators

	Unit	Q1 2024	Mar-2023	Mar-2022	Mar-2021
Total managed assets	Rs crore	871	694	2.8	2.7
Total income	Rs crore	48	95.2	0.3	0.3
PAT	Rs crore	11.8	21.4	0.2	0.06
Return on managed assets	%	6.0*	6.2	6.9	2.0
GNPA (90+ dpd)	%	0.01	0.01	0	0
Adjusted gearing (including off-book)	Times	2.8	2.9	-	-

*annualised,

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
NA	Non convertible Debenture^	NA	NA	NA	26	Simple	CRISIL BBB/Stable
INE0NES07022	Non convertible Debenture	07-Jun-2023	11.6	31-Jan-2025	24	Simple	CRISIL BBB/Stable
INE0NES07030	Non convertible Debenture	23-Jun-2023	11.65	22-Feb-2025	150	Simple	CRISIL BBB/Stable
NA	Long Term Bank Facility	NA	NA	NA	140.02	NA	CRISIL BBB/Stable
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	359.98	NA	CRISIL BBB/Stable

^Yet to be issued