Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL PPMLD BBB+ r/Stable' rating to the Rs 200 crore Long Term Principal Protected Market Linked Debentures and 'CRISIL A2+’ to the Rs 75 crore Commercial paper instruments while reaffirming its 'CRISIL BBB+/Stable' on the long-term bank facility and non-convertible debentures of KrazyBee Services Private Limited (KrazyBee).

 

The rating reflects the healthy capitalisation metrics of the company backed by regular equity infusion and strong backing from private equity (PE) partners such as Premji Invest, NewQuest Capital, Motilal Oswal Private Equity, ICICI Bank amongst others, and its scalable business model equipped with technology for end-to-end operations and strong management team. These strengths are partially offset by the inherent vulnerability of asset quality metrics given the segment of borrowers and modest earnings, which although improving, were impacted amid high credit cost and loss of revenue during the Covid-19 pandemic. The company is vulnerable to the changing regulatory landscape for digital lenders. Any material adverse impact on the business risk profile because of regulatory changes will be a key monitorable.

 

The company offers unsecured personal loans to young professionals, with ticket size varying from Rs 3,000 to Rs 3 lakh with average tenure of around five months and average annual percentage rate (APR) of ~42%. It offers loans through its group company, Finnovation Tech Solutions Private Limited (FTSPL), which has a tech platform, ‘KreditBee’ and the platform originates loans for KrazyBee and several other partner-lenders. FTSPL earns revenue by way of processing fees from borrowers, along with commission income from partner lenders, and gives first loss default guarantee (FLDG) of 5-10% to partner vendors. The group has an in-house technological base with end-to-end integration for loan origination, risk assessment, collections, accounting. Owing to its digital origination method, the group has a sphere of lending across India.

Analytical Approach

For arriving at the ratings of KrazyBee Services Private Limited, CRISIL Ratings has taken a consolidated approach. CRISIL Ratings has on a consolidated basis analysed the businesses of KrazyBee Services Private Limited (KrazyBee), Finnovation Tech Solutions Private Limited (FTSPL), KartBee Technologies Private Limited (KTPL) and their parent Finnov Private Limited (FPL).

 

Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy capitalisation metrics

Since inception, the group has raised equity of Rs 630.94 crore in primary infusion and an additional over Rs 700 crore in secondary share sale. Owing to timely capital infusion, the group had strong networth of Rs 659.2 crore as on March 31, 2022, despite loss of ~Rs 48.1 crore. The groups gearing was comfortable at 1.2 times as on the same date. Backed by a PAT of Rs 24 crore in Q1 of fiscal 2023, the net worth improved to Rs 683 crore with a gearing of 1.5 times as on June 30, 2022.  On standalone level, KrazyBee had networth of Rs 617 crore and gearing of 1.7 times as on June 30, 2022. On steady-state basis, CRISIL Ratings expects the gearing to stay below 4 times. Also, CRISIL Ratings notes that the ongoing capital raising process is likely to be concluded in September 2022. The ability of the group to raise capital on ongoing basis to fund growth momentum will remain a key monitorable.

 

• Easily scalable business model led by strong tech platform

KrazyBee offers unsecured loans of up to Rs 3 lakh to young professionals (since FY2019) with for a tenure of up to 18 months; prior to fiscal 2019, the company offered loans to students with a tenure of upto 2 years. The company has a fully automated digital lending model with the loan origination happening through its mobile application. Owing to its digital origination method, the company has a sphere of lending across India.

 

The origination and disbursements of loans happen through the app KreditBee owned by FTSPL, which has an integrated in-house technology platform with an interactive user-friendly app and website to facilitate the borrowers to apply for loans. The platform has tie-ups with partner lenders and earns processing fee from the borrowers. It has end-to-end integration in terms of loan origination, risk assessment, collections, etc. It is also integrated with partner lenders, allowing for seamless operations and accounting.

 

Disbursements increased at compound annual growth rate of ~316% till fiscal 2020 to Rs 7,324 crore from Rs 102 crore in fiscal 2018. With increased disbursements, the assets under management (AUM) grew to Rs 1,090 crore as on March 31, 2020, from Rs 42 crore as on March 31, 2018.

 

However, amid the impact of the Covid-19 pandemic, disbursements were scaled down to Rs 2,133 crore in fiscal 2021 with a consequent effect on AUM declining to Rs 816 crore. Nevertheless, upon opening up of the economy, disbursements also picked up to reach Rs 5,796 crore in fiscal 2022 with AUM increasing to Rs 1,951 crore. Further, for Q1 of fiscal 2023 the disbursements were Rs 2905 crore with an AUM of Rs 2523 crore.

 

Weakness:

• Vulnerability in asset quality owing to risks associated with borrower class

The company focuses on giving unsecured loans to young professionals, wherein asset quality metrics remain vulnerable to slippages. As on March 31, 2022, around 10% of the AUM was towards new to credit borrowers. The same was observed during the Covid waves, which materially impacted the repayment ability of the borrowers.

 

Amidst the Covid waves, the asset quality metrics of the company had been impacted with the 90+ days past due (dpd as % of disbursements) increased to 2.6% as on March 31, 2021, from 0.1% as on March 31, 2019. The company has an aggressive write-off policy, wherein it writes off loans at 180 days dpd. Therefore, cumulative of the past 12 month write-offs, the company’s 90+ dpd including write offs inched up to 7.3% as on March 31, 2021. In terms of AUM, the metrics remained elevated because of the short tenure and churn in the portfolio; the 90+ dpd as a percentage of AUM inched up to 6.9% as on March 31, 2021, as against 0.4% as on March 31, 2019.

 

Collection efficiency (current collections) of the group were impacted, which fell to ~80% during the first wave and 81% during the second wave of the pandemic. However, with the reopening of economy and focus on collections, the collections inched up to 95% and have remained stable at 91-95% since January 2022.

 

Consequently, the 90+ dpd (as a % of disbursements) of the group improved substantially to 0.6% as on March 31, 2022, from 2.6% as on March 31, 2021. Also, the 90+ dpd including write-offs and FLDG payouts improved to 3.3% as on March 31, 2022, compared with 9.9% a year earlier and 3.5% as on March 31, 2020. As on June 30, 2022, the 90+ dpd including write-offs remained stable at 2.5%. As percentage of AUM, the 90+ dpd (including write-offs and FLDG payouts) although improved, continues to remain elevated at 9.7% as on March 31, 2022, compared with 25.8% as on March 31, 2021. The same has however improved to 4.1% as on June 30, 2022.

 

Furthermore, the company has shifted focus to borrowers with better credit. Of the total disbursements since April 2022, almost 89% has been towards borrowers with CIBIL score greater than 700; as against earlier wherein NTC/CIBIL score under 700 used to account for ~60% of total disbursements. Additionally, over 80% of the disbursements are to repeat borrowers with a track record with KrazyBee, which provides some comfort. However, the company has restructured portfolio of ~Rs 119 crore or 6.1% of the overall AUM, the performance of which will be a key monitorable. The ability to improve asset quality metrics as the portfolio scales up on a static basis will remain a key monitorable.

 

• Modest earnings

Given the business model, the group generates both interest income from the loan extended by KrazyBee and processing fees at the platform level with each disbursement. Given the short tenure of loans, the processing and other service fees have a significant contribution to the earnings. In fiscals 2018 to 2022, processing fees at consolidated level to total income stood at 50-80%.

 

Despite early stage of operations, the group had been reporting profit since fiscal 2019, recording healthy return on managed assets (RoMA) of 14.5%, with profit after tax (PAT), as a percentage of disbursements, at 2.9% in fiscal 2019. This primarily stemmed from the processing fees the group was able to charge its borrowers. In fiscal 2019, processing fees as a percentage of total assets stood at 25.6% while credit costs as a percentage of disbursements stood at 1.9% (5.4% on total managed assets).

 

However, in fiscal 2020 amid the onset of the pandemic, the credit costs stood at 3.3% on disbursements (22.5% of total managed assets), translating into RoMA of 12.5% and PAT of 1.8%.

 

In fiscal 2021, amid the impact of the pandemic on economic activity, asset quality metrics deteriorated. Consequently, credit cost deteriorated to 7.1% on disbursements (18.5% of AUM), with decline in RoMA to 6.7% and PAT of (4.7)%, with the group reporting loss. This trend continued in fiscal 2022, with credit cost, although improving, continued to remain elevated at 3.4% on disbursements (10.2% of AUM) and RoMA of (2.6) % and PAT of (0.8)%. The decline was despite the pick-up in disbursements, which resulted in processing fees and other service fees increasing to Rs 384 crore in fiscal 2022 from Rs 163 crore in fiscal 2021 (Rs 560 crore in fiscal 2020). What also put a drag on the earnings was the increase in operating expenses as the company had to bear increased advertisement cost, along with charges paid to the collection agencies employed by the company since fiscal 2022.

 

However, the write-offs were mainly done in the first half of fiscal 2022 and the group became profitable from the second half with RoMA of 8.8%(annualised) and PAT as a percentage of disbursements of 7.4%(annualised). In the first quarter of fiscal 2023, the group reported a PAT of Rs 24 crore, resulting in ROMA of 3.6%(annualized) and PAT as a percentage of disbursements of 3.3%(annualized).

 

Increase in disbursements should support the revenue, which along with control on asset quality is expected to provide support to earnings, over the medium term. Therefore, ability to sustain improvement in earnings will remain a key monitorable.

Liquidity: Adequate

Asset-liability mismatch of KrazyBee is comfortable with positive mismatches across buckets of upto one year as on June 30, 2022. At consolidated level, cash and equivalent (including unutilised bank lines) stood at Rs 338 crore as on June 30, 2022, against debt repayment obligation (including interest) of Rs 344 crore till September 2022. Furthermore, the group had unutilised bank lines of Rs 35 crore as on June 30, 2022.

Outlook: Stable

CRISIL Ratings believes KrazyBee will maintain healthy capitalisation metrics while benefitting from the experience of the promoters. However, asset quality performance and profitability will be demonstrated only over time.

Rating Sensitivity factors

Upward factors:

• Sustainability in gross non-performing assets (including write-offs) below 3% over the medium term
• Increase in scale of operations and maintaining stable asset quality metrics and earnings

 

Downward factors:

• Increase in steady state gearing above 4 times
• Adverse movement in asset quality leading to substantial impact on earnings and capitalisation metrics

About the Company

KrazyBee Services (P) Limited is a systemically important, non-deposit taking, non-banking financial company (ND-NBFC). The company commenced operations in fiscal 2017 and is promoted by Mr Madhusudan Ekambaram, Mr Vivek Veda and Mr Karthikeyan Krishnaswamy, who have prior experience in product portfolio management, sales, technology and finance. It is backed by strong PE investors such as New Quest Capital, Premji Invest, Alpine Capital, Motilal Oswal Private Equity, ICICI Bank amongst others. The company focuses on providing unsecured personal loans to young professionals in India.

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	Long Term Principal Protected Market Linked Debentures*	NA	NA	NA	200	Highly Complex	CRISIL PPMLD BBB+ r/Stable
NA	Commercial Paper	NA	NA	7-365 days	75	Simple	CRISIL A2+
NA	Non-Convertible Debentures*	NA	NA	NA	100	Simple	CRISIL BBB+/Stable
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	30	NA	CRISIL BBB+/Stable
NA	Term Loan	NA	NA	30-Sep-24	20	NA	CRISIL BBB+/Stable
NA	Working Capital Demand Loan	NA	NA	NA	50	NA	CRISIL BBB+/Stable

*Yet to be issued