| Kisetsu Saison Finance India Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 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 AAA/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of Kisetsu Saison Finance India Private Limited (Credit Saison India).
The ratings continue to reflect the strategic importance of Credit Saison India to, and expectation of strong financial support from, its parent, Credit Saison Co. Ltd, Japan (Credit Saison), and the strong moral obligation of the latter to support the Indian subsidiary. The ratings also factor in strong capitalisation metrics of the company. These strengths are partially offset by nascent stage of operations in India, with limited seasoning and moderate operating expenses.
The capital profile of the Indian subsidiary has been supported by regular equity infusions by the parent, as also evidenced by Rs 400 crore infused in September 2023. Capitalisation metrics for Indian operations are strong with networth of Rs 2,245 crore and gearing of 3.7 times as on December 31, 2023, as against Rs 1,759 crore and 2.8 times, respectively, as on March 31, 2023.
In March 2024, the company divested around 15.1% (16.3% on non-diluted basis) of its stake to Mizuho Bank, Japan, and to one of its subsidiaries (a part of the Mizuho Financial Group), for which it has received a consideration of Rs 1,200 crore. This would strengthen the capital position further.
During the nine months ended December 31, 2023, the loan book of Credit Saison India scaled up to Rs 9,929 crore (y-o-y growth of 90%, annualised), as against Rs 5,939 crore as on March 31, 2023. The share of direct lending by the company to overall AUM has consequently increased to 23% as on December 31, 2023, from around 16% as on March 31, 2023. |
Analytical Approach To arrive at the ratings of Credit Saison India, CRISIL Ratings has factored in likely support from the Credit Saison group, given the strategic importance of the company and the strong moral obligation to support the same, given the ownership, shared brand and strong operational integration. |
Key Rating Drivers & Detailed Description Strengths:
The Credit Saison group has been in the consumer finance business for 73 years, primarily offering credit cards and retail finance products. It has been in the credit card business since inception, with finance and other businesses being added to its portfolio since 2001. Given the track record of operations, Credit Saison is amongst the top credit card companies in Japan and also offers credit cards in alliance with leading businesses across different industries. The group currently has around 36 million cardholders under its portfolio. It currently operates in six verticals – payments, finance, leasing, real estate, entertainment and global. In order to ensure strong growth, the group has been expanding its operations globally and over the past seven years, it has established presence in six countries through its subsidiaries and affiliates. With consistent efforts towards growth via segmental and geographical diversification, the group has been able to reach an asset size (total receivables outstanding) of Rs 195,148 crore[1] as on December 31, 2023, at a consolidated level.
The group has witnessed sustainable improvement in its capital and earnings profile, having consistently generated strong shareholder equity levels in last 10 years, with the same remaining above 15% across years (barring March 2020, where it dropped to 14.4% during the Covid-19 pandemic). Shareholder equity of the group has improved further in the last five years, to 15.6% as on December 31, 2023, as against 15.4% in March 2022. Additionally, capitalisation metrics are comfortable, with networth of Rs 39,572 crore1 as on December 31, 2023, aided by sufficient internal accrual for the past several years. This is despite significant event-linked challenges, including the Great East Japan earthquake, Money Lending Business Act and development of a new technology system, amongst others. For the nine months ended December 31, 2023, the group reported profit after tax (PAT) of Rs 3,681 crore1 as against Rs 2,715 crore2 during fiscal 2023.
The group plans to invest heavily towards geographical expansion, specifically in emerging markets, and aims to transform itself into a comprehensive life services group. In line with the overall strategy, India is one of the most important markets where the group plans to scale up its business rapidly with a focus on consumer and MSME segments. Though Indian operations have commenced only from 2019, the group has already infused equity capital of Rs 2,027 crore, of which Rs 400 crore was infused in September 2023. Support from the parent is also visible in arranging debt funding to Indian operations via common Japanese bank relationships.
Further, the group maintains strong oversight on Indian operations, having deployed its senior management personnel on to the board of Credit Saison India. The board is controlled by the parent with Mr Katsumi Mizuno and Mr Kosuke Mori as common board directors, and Mr Yasuyuki Isobe and Mr Masaki Negishi, as directors. Risk management policies, systems and processes used by Credit Saison India are centrally approved by the parent.
Additionally, in March 2024, Credit Saison India received equity of Rs 1,200 crore from Mizuho Bank, Japan and one of its subsidiaries, following which stake of the Credit Saison group came down to 83.65%. Nevertheless, the parent will retain a majority shareholding and exercise complete management control over the company. Shared brand and complete management control enhance the expectation of support from Credit Saison group, if needed. Any material disruption in Indian operations could, in CRISIL Ratings’ view, have a significant impact on the reputation and franchise of the parent. Any change in the management control by, or expectation of support from, the Credit Saison group will remain a key rating sensitivity factor.
Capitalisation metrics of Credit Saison India are strongly supported by regular equity infusions by the parent. Networth rose to Rs 1,759 crore (from Rs 1,128 crore a year before) and gearing stood at 2.8 times, as on March 31, 2023. Following an equity infusion of Rs 400 crore in September 2023, networth improved to Rs 2,245 crore as on December 31, 2023, while overall gearing inched up to 3.7 times as on the same date, in line with increasing scale of operations.
In March 2024, the Credit Saison group divested around 15.1% (16.3% on non-diluted basis) of its stake in the Indian NBFC to Mizuho Bank, Japan and one of its subsidiaries (a part of the Mizuho Financial Group), for which it received a consideration of around Rs 1,200 crore.
Nevertheless, given the growth plans, the company will continue to raise funds while scaling up operations. It plans to maintain a steady-state net gearing of below 5 times in the medium term.
Weaknesses:
Credit Saison India started its operations in 2019, under two verticals – wholesale lending and co-lending / fin -tech partnerships. Under wholesale lending, the company lends majorly to other NBFCs, focused on consumer and MSME segments, whereas under co-lending / fin -tech partnerships, the company ties up with other NBFCs/fin-tech players to lend to consumers or MSMEs, at an agreed ratio. Since February 2022, the company also started direct lending to MSMEs, through a branch-led business model. As operations commenced only around four years ago, they are still at a nascent stage. The company had a loan book of Rs 9,929 crore as on December 31, 2023, with co-lending / fin -tech partnerships forming 56% of the overall AUM, followed by the wholesale portfolio (21%) and direct lending (23%).
Nevertheless, along with the growing portfolio, Credit Saison India has also set up strong risk management systems and policies, and constantly monitors borrowers and its co-lending /fin-tech partners, right from the stage of screening and selection. The company has a well-defined process, right from shortlisting the borrower/partner to monitoring the portfolio performance. While in the wholesale vertical, it hypothecates the receivables, in the co-lending / fin-tech partnerships portfolio, it gets a credit enhancement cover in the form of default-loss guarantee (DLG) from the partner entities.
As a result, asset quality metrics in terms of 90+ dpd were comfortable at 1.02% as on December 31, 2023, as against 0.49% as on March 31, 2023.
Additionally, with scale up in the direct lending book, which is less seasoned, sustenance in asset quality metrics remains a key monitorable.
The earnings profile was constrained due to elevated operating expenses, given the nascent stage of operations. Operating expenses (as a percentage of average managed assets) stood at 5.2% during fiscal 2023, resulting in return on managed assets (RoMA) of around 1.7%.
However, over the nine months ending December 31, 2023, earnings profile moderated marginally with RoMA declining to 1%, primarily on account of rising credit cost. Credit cost (as a percentage of average managed assets), rose to 2.3% (1% in fiscal 2023) during this period, primarily on account of higher write-offs towards delinquent accounts and increased provisioning as share of the direct lending book has increased. Delinquent accounts also rose on account of reduced credit enhancement/DLG cover across the co-lending /partnership loan book, in line with RBI guidelines, which cap the DLG up to 5%. Operating expenses on the other hand have been rangebound at 4.9% between April and December 2023.
With operations at a nascent stage, operating expenses will be moderate, as the company invests more on branch expansions (for the direct lending business), technology, employees and risk management. Improvement in earnings profile, along with scale up in operations, remains a key sensitivity factor. [1] Converted at 1 JPY = 0.59 INR (as on December 31, 2023) 2 Converted at 1 JPY = 0.62 INR (as on March 31, 2023) |
Liquidity: Superior Liquidity is marked by positive cumulative mismatches across all buckets. As on December 31, 2023, the company had liquidity in the form of cash and bank balances (including liquid investments) of Rs 754 crore, along with expected inflows to the tune of Rs 5,970 crore for the next 12 months. The company also had undrawn sanction lines of Rs 2,125 crore. Against this, the company had debt obligations of Rs 4,213.18 crore for the next 12 months. |
Outlook: Stable CRISIL Ratings believes Credit Saison India will remain strategically important to, and continue to receive financial, managerial, and operational support from, Credit Saison Group. |
Rating Sensitivity factors Downward factors
|
About Credit Saison India Credit Saison India, a wholly owned subsidiary of Credit Saison Japan, was incorporated in June 2018. The company received its NBFC license in September 2019, and started operations via the partnership-led model. Under this model, the company partners with other NBFCs/fin-tech players to build its retail book, mainly in two verticals – wholesale lending and co-lending / fin-tech partnerships. In February 2022, the company also started direct lending to MSMEs. While the given portfolio was relatively small, it is expected to increase in the medium term.
About Credit Saison Co. Ltd. Credit Saison Japan was founded in 1951. The group offers consumer finance/SME finance products. Till 2001, the group was primarily into the credit card business, but subsequently set up presence across multiple segments such as payments (credit card service), finance/lending, leasing, real estate and global. In 2013, the group started expanding its operations globally and is now present in six countries through its subsidiaries. At the consolidated level, the group had receivables outstanding of Rs 195,148 crore1 as on December 31, 2023. Networth of the group stood at Rs 39,572 crore1 as on the same date. For the nine-month period ending December 31, 2023, the group reported profit after tax (PAT) of Rs 3,681 crore1 as against Rs 2,715 crore2 for the period ending March 31, 2023. |
Key Financial Indicators: (Credit Saison India, Standalone)
*All figures for the period ending/as on December 31, 2023, are provisional |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Yet to be issued & yet to be availed |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|