| Kisetsu Saison Finance India Private Limited | ||||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures; rated amount enhanced for Commercial Paper | ||||||
| Rating Action | ||||||
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| 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 assigned its ‘CRISIL AAA/Stable’ ratings to the Rs 200 crore non-convertible debentures and reaffirmed its ratings on the bank facilities and commercial paper of Kisetsu Saison Finance India Private Limited (Credit Saison India) at ‘CRISIL AAA/Stable/CRISIL A1+’.
The ratings reflect Credit Saison India’s strategic importance to, and expectation of strong financial support from, its parent, Credit Saison Co. Ltd, Japan (Credit Saison Group) and strong moral obligation of the latter to support the Indian subsidiary. The ratings also factor in Credit Saison India’s strong capitalisation metrics. These strengths are partially offset by nascent stage of India operations with limited seasoning and moderate operating expenses.
The capital profile of the Indian subsidiary has been supported by the regular equity infusions by the parent as also evidenced by the latest infusion of Rs 400 crore in September 2023. With this, the parent has now infused a total of Rs 2,027 crore in the subsidiary. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has factored in the support expected from Credit Saison Group given the strategic importance of Credit Saison India to the former, and the strong moral obligation to support the entity given the ownership, shared brand and strong operational integration. |
Key Rating Drivers & Detailed Description Strengths:
Credit Saison group has been in the consumer finance business for 72 years, primarily offering credit card and retail finance products. It has been in the credit card business since inception, with finance and other businesses being added to the portfolio 2001 onwards. 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 35 million cardholders under its portfolio. Since 2001, the group has been continuously investing towards product diversification and currently has various products under its portfolio spanning across 6 verticals – payments, finance, leasing, real-estate, entertainment and global. In order to ensure strong growth, Credit Saison has been expanding its operations globally and over the past 7 years has established presence in 6 countries through its subsidiaries and affiliates. With the consistent efforts towards growth through both segmental and geographical diversification, the group has been able to reach the asset size (total receivables outstanding) of Rs 173,571 crore[1] as on June 30, 2023 at a consolidated level.
Credit Saison group’s credit profile has seen a sustainable improvement in its capital and earnings profile, wherein, the group has been consistently generating strong shareholder equity levels in last 10 years, with the same remaining above 15% across years (barring March 2020, where the shareholder equity dropped to 14.4% due to Covid). Furthermore, the shareholder equity of the group has improved in last 5 years and reached 15.6% in June 2023, as against 14.4% in March 2020. Additionally, the capitalization metrics of the group remained comfortable with networth of Rs 34,817 crore2 as on June 30, 2023, with the same being supported by sufficient internal accruals 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 quarter ended June 30, 2023, the group reported profit after tax (PAT) of Rs 969.5 crore2 as against Rs 2,495 crore2 for the period ending March 31, 2023. The group also saw an improvement in return on assets with the same improving to 1.7% (annualized) as on June 30, 2023, as against 1.2% in March 2023. The improvement in the earnings profile was supported by the reduction in the operating expenses, wherein, the group had made significant investments to build a new technology system to streamline its payments business.
On the asset quality front also, the group continued to maintain comfortable asset quality metrics in terms of 90+ dpd remaining in the range of 1.1%-1.7% in last 10 years. The 90+ dpd even improved marginally post the Covid, with same dropping to 1.2%, in June 2023, as against 1.5% in March 2020.
Credit Saison Group plans to invest heavily towards the geographical expansion, specifically in the emerging markets and aims to transform itself into a comprehensive life services group . In line with the overall group strategy on geographical expansion, India is one of the most important markets for the group where the group plans to scale up its business rapidly with a focus on Consumer and MSME segments. As a part of the growth strategy, despite the Indian operations starting from 2019, the group has already infused equity capital of Rs 2027 crore of which Rs 400 crores was infused in September 2023. The support from the parent is also visible in arranging the debt funding to the Indian operations through common Japanese bank relationships.
Further, the group maintains strong oversight on the Indian operations with deployment of senior management personnel from the Credit Saison Group on to the Board of Credit Saison India. Credit Saison India board is controlled by the parent with Mr Katsumi Mizuno and Mr Kosuke Mori as common board directors and Mr Yasuyuki Isobe as a director. The risk management policies, systems and processes used by Credit Saison India are centrally approved by the parent. The shared brand and the complete management control also enhances the expectation of support from Credit Saison Group, if needed. Any material disruption in the Indian operations could, in CRISIL Ratings’ view, have a significant impact on the reputation and franchise of the parent. Credit Saison India is expected to continue to benefit from the strong support from the Credit Saison Group. Any change in the management control by, or expectation of support from, Credit Saison Group will remain a key rating sensitivity factor.
Capitalization metrics are strongly supported by regular equity infusion by the parent. As a result of regular infusions by the parent entity, the reported networth of the company stood at Rs 1,780 crore as on June 30, 2023, as against Rs 1759 crore as on March 31, 2023. The gearing metrics also remained low at 3.3 times as on the same date and is further expected to improve with the latest infusion of Rs 400 crore in September 2023. Nevertheless, given the growth plans, the company will continue to raise funds while scaling up of operations. The company plans to maintain a steady state net gearing of 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. In wholesale lending, the company lends majorly to other NBFCs, especially focusing on consumer and MSME segments, whereas, in Co-lending / Fin -Tech Partnerships, the company partners with other NBFCs/Fin -Tech to lend to Consumer or MSMEs at an agreed ratio. From February 2022, the company also started direct lending to MSMEs through a branch-led business model. Given that the company started its operations only 4 years ago, it is still at the nascent stages. The company had an asset under management (AUM) of Rs 6,771 crore as on June 30, 2023, of which, 57% constituted the Co-lending / Fin -Tech Partnerships portfolio, followed by 24% of wholesale portfolio and 19% of direct lending portfolio.
With the growing portfolio, Credit Saison India has also ensured a strong risk management systems and policies, which involves continuous monitoring of its borrowers as well as Co-lending / Fin Tech partners right from the stage of screening and selection. The company has a well-defined process, right from shortlisting of the borrower/partner to monitoring the portfolio performance. While in the wholesale vertical, the company hypothecates the receivables, whereas in the Co-lending / Fin -Tech Partnerships portfolio, the company gets credit enhancement cover provided by the partner entities.
As a result, the asset quality metrics in terms of 90+ dpd remained comfortable at 0.66% as on June 30, 2023, as against 0.49% in fiscal 2023.
Nevertheless, the portfolio currently lacks seasoning and how the company uses its risk mitigants to maintain the asset quality remains to be seen. Additionally, the company has started the direct lending book, which will now expand further in the near and medium term. Therefore, sustenance on the asset quality metrics while scaling up this portfolio also remains a key monitorable.
Credit Saison India turned profitable within 1 year of initiating its lending operations, with it reporting a profit after tax (PAT) of Rs 12.1 crore in fiscal 2021. This has been achieved due to low credit costs supported by the Credit Enhancements and nil cost of borrowings at the time as the company remained debt-free during the given period.
The company continued to generate healthy profits in the latter years also and reported a profit after tax of Rs 18 crore and return on managed assets (RoMA) of 1.0% (annualized) in the first quarter of fiscal 2024, as against Rs 79 crore and 1.7% respectively in fiscal 2023.
However, the earnings remained constrained due to moderate operating expenses, given the nascent stage of operations. Operating expenses (as a percentage of advances) stood at 5.6% (annualized) as on June 30, 2023, as compared to 5.9% in fiscal 2023. Since the company is still at nascent stage of its operations, the operating expenses are expected to remain moderate, as the company invests more on the expansion of branches for the direct lending business, technology, employees and risk management. Improvement of the earnings profile as the company scales up its operations therefore remains a key sensitivity factor. [1] Converted at 1 JPY = 0.57 INR |
Liquidity: Superior Credit Saison India’s liquidity profile remained comfortable as on August 31, 2023, as the company had cash and cash equivalents of Rs 541 crore, unutilized term loans of Rs 1200 crore and unutilized WCDL lines of Rs 200 crore. Against this, the company had debt repayments (including interest) of Rs 1101 crore for the next three months (September 2023 – November 2023). Asset-liability maturity profile of the company also remained comfortable as on June 30, 2023, with positive mismatches across the buckets up to 1 year. The company has a policy of maintaining liquidity cover of 3-6 months of debt repayments. |
Outlook: Stable CRISIL Ratings believes Credit Saison India will remain strategically important to, and will 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 CRISIL Ratings’ view, on the credit profile of Credit Saison Group ● Any adverse movement in asset quality with 90+ dpd including write-offs increasing beyond 4% (net of any credit enhancements) leading to a sustained impact on the earnings profile ● Company reporting losses on consistent basis |
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 its operations with adoption of partnership-led model as its entry strategy, wherein, the company partners with other NBFCs / FinTechs to help build its retail book. Through the partnership model, the company ties up with top tier NBFCs and Fintech in the two verticals – Wholesale Lending and Co-lending / Fin -Tech Partnerships. In Feb 2022, the company also started direct lending to MSMEs. While the given portfolio remained relatively small, however, it is expected to increase in the medium term.
About Credit Saison Co. Ltd. Credit Saison Japan was founded in the year 1951. The group offers consumer finance/SME finance products. Till 2001, the group was primarily into the credit card business, post-which, it began to diversify its revenue streams and currently has a presence across multiple segments such as payments business (credit card service), finance/lending business, leasing, real estate and Global. In 2013, the group began to further expand its operations globally and currently has presence in 6 countries through its subsidiaries. At the consolidated level, the group had a receivables outstanding of Rs 173,571 crore2 as on June 30, 2023. The net worth of the group stood at Rs 34,817 crore2 as on the same date. For the quarter ended June 30, 2023, the group reported profit after tax (PAT) of Rs 969.5 crore[1] as against Rs 2,495 crore3 for the period ending March 31, 2023. [1] Converted at 1 JPY = 0.57 INR |
Key Financial Indicators
*All figures for the period ending/as on June 30, 2023, are provisional |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be availed ^Yet to be issued |
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