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 modest earnings profile.

 

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. Further, Mizuho Bank, Japan and one of its subsidiary (a part of the Mizuho Financial Group) acquired 15.1% (16.3% on non-diluted basis) stake in the entity by infusing Rs 1200 crore in March 2024. Networth stood at Rs 3627 crore and gearing was 3.7 times as on September 30, 2024 (Rs 3,503 crore and 2.6 times as on March 31, 2024). 

 

Kisetsu Saison India’s Loan Book grew to Rs 11,705 crore as on March 31, 2024, from Rs 5,939 crore as on March 31, 2023. The share of direct lending by the company to overall AUM has consequently increased to 26% as on March 31, 2024, from around 16% as on March 31, 2023. As on September 30, 2024, loan book further grew to Rs 16,100 crore of which direct lending book was 29%.

Analytical Approach

To arrive at the ratings of Kisetsu 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:

Strategic importance to, and expectation of strong financial support from, the parent, Credit Saison Co. Ltd., Japan: 

The Credit Saison group has been in the consumer finance business for over 7 decades, 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 a presence in seven 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 1,77,208 crore[1] as on June  30, 2024 (Rs 183952 Crore [2] as on March 31, 2024), 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 16.3% as on March 31, 2024, as against 15.4% in March 2022. Additionally, capitalisation metrics are comfortable, with networth of Rs 37,187 crore [1] as on June 30, 2024 against Rs 39,533 crore[2]   as on March 31, 2024, 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 fiscal 2024, the group reported profit after tax (PAT) of Rs 4,037 crore[2]  as against Rs 2,715 crore[3] during fiscal 2023. PAT was Rs 871 crore[1] for the first quarter of fiscal 2025.

 

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 Kisetsu Saison India. The board is controlled by the parent with Mr Katsumi Mizuno and Mr Kosuke Mori as common board directors, and Mr Masaki Negishi, as director. Risk management policies, systems and processes used by Kisetsu Saison India are centrally approved by the parent.

 

Additionally, in March 2024, Kisetsu 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.

 

Strong capitalisation

Capitalisation metrics of Kisetsu Saison India are strongly supported by regular equity infusions by the parent. Networth stood at Rs 3627 crore and a gearing of 3.7 times, as on September 30, 2024 (networth of Rs 3503 crore and gearing of 2.6 times as on March 31, 2024). This is following equity infusion of Rs 400 crore in September 2023, and Rs 1200 crore by Mizuho Bank, Japan and one of its subsidiaries (a part of the Mizuho Financial Group), in March 2024.

 

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.

 

[1] Converted at 1 JPY = 0.518 (as on June 30, 2024)

[2] Converted at 1 JPY = 0.55 INR (as on March 31, 2024)

[3] Converted at 1 JPY = 0.62 INR (as on March 31, 2023)

 

Weaknesses:

Nascent stage of operations with limited seasoning of portfolio

Kisetsu 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 16,100 crore as on September 30, 2024, with co-lending / fin -tech partnerships forming 54% of the overall loan Book, followed by the wholesale portfolio (17.4%) and direct lending (28.9%). Further, The Company has started small ticket loan against property (LAP) in Q4FY24.

 

Nevertheless, along with the growing portfolio, Kisetsu 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 1.1% as on September 30, 2024 against 0.84% as on March 31, 2024 (0.49% as on March 31, 2023).

 

However, with scale up of the less seasoned direct lending book, sustenance of asset quality metrics remains a key monitorable.

 

Modest earnings profile

The earnings profile was constrained due to elevated operating expenses, given the nascent stage of operations. In fiscal 2024, earnings profile moderated marginally with return on managed assets (RoMA) declining to 1.3% from 1.7% in previous fiscal, primarily on account of rise in credit cost (as a percentage of average managed assets), to 2% (1% in fiscal 2023), primarily on account of write-offs towards delinquent accounts and increased provisioning as share of the direct lending book has increased. Operating expenses, although marginally reduced to 4.9% for fiscal 2024 from 5.2% in fiscal 2023, remain elevated.

 

During the first half of fiscal 2025, annualized ROMA was 1.3% Given the envisaged growth, operating expenses will remain high in the medium term, 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.

Liquidity: Superior

Liquidity is marked by positive cumulative mismatches across all buckets. As on September30, 2024, the company had liquidity in the form of cash and bank balances (including liquid investments) of Rs 1110 crore.  The company also had undrawn sanction lines of Rs 2415 crore as on September 30, 2024. This is sufficient to meet maturing debt obligations due until February 2025.

Outlook: Stable

CRISIL Ratings believes Kisetsu 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

• Decline in support from the parent, Credit Saison Group or material change in the shareholding, or any downward revision in view of CRISIL Ratings on the credit profile of Credit Saison Group
• Weakening of asset quality with 90+ dpd, including write-offs exceeding 4% (net of any DLG), leading to a sustained impact on the earnings profile

About Kisetsu Saison India

Kisetsu 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.  Further, The Company has started small ticket LAP business in Q4FY24.

 

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 seven countries through its subsidiaries. At the consolidated level, the group had receivables outstanding of Rs 1,83,952 crore[1] and Networth of Rs 39,533 crore[1]  as on March 31, 2024. For fiscal 2024, the group reported profit after tax (PAT) of Rs 4,037 crore[1] as against Rs 2,715 crore[2]  during fiscal 2023.

Any other information: Not Applicable