| Loantap Credit Products Private Limited | ||||
| 'CRISIL BBB-/Stable' assigned to bank debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL BBB-/Stable' rating to the Rs 200 crore bank loan facility of Loantap Credit Products Private Limited (LCPPL). |
| Analytical Approach |
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For arriving at the rating, CRISIL has combined the business and financial risk profiles of Loantap Technologies Pvt Ltd (LTPL) and its subsidiaries Loantap Credit Product Pvt Ltd (LCPPL, wholly owned subsidiary) and I-Loan Credit Pvt Ltd (I-Loan-82.99% owned), together referred to as Loantap group. The companies have strong operational and financial linkages, common senior management, and shared brand. |
| Key Rating Drivers & Detailed Description |
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Strengths * Healthy capitalisation metrics Capitalisation metrics are comfortable supported by regular capital infusion. The group has raised about Rs 170 crore of equity since inception from a diverse set of sources such as private equity players, promoters and high networth individuals (HNIs). Consequently, the networth of the group stood at Rs 171 crore (including goodwill) with adjusted gearing at 1.0 time as on March 31, 2020. At standalone level, LCPPL reported a networth of Rs 121 crore with adjusted gearing of 1.3 times as on June 30, 2020. The group can grow at 50% CAGR over next two years without any equity capital infusion and still ensure gearing remains below 3 times. Capitalisation is expected to remain comfortable over the medium term, thus providing a cushion against asset-side risks. * Scalable business model with prime focus on urban salaried customers The group has adopted a branchless business model with most of the operations from origination to disbursements happening digitally. Around 70% of sourcing is done through digital marketing where group advertises on social media platforms along with using search engine optimization tool. The group has also tied-up with corporate and third-party marketing field agents to generate lead for its products. As majority of the sourcing is done online, the customer acquisition cost and the turnaround time are fairly lower. Consequently, the group has been able to grow its assets under management (AUM) at a CAGR of 132% during fiscal 2018-2020 to reach Rs 331 crore as on March 31, 2020 at consolidated level (Rs 294 crore at standalone level). However, amidst the economic environment, consolidated AUM de-grew by 6% from March 31, 2020 to June 30, 2020 to Rs 310 crore (Rs 279 crore at standalone level). Nevertheless, the group is expected to pick-up growth faster by virtue of being a technology driven enterprise as and when the situation normalises. In terms of target segment, the prime focus of the group remains on urban salaried segment with more than 50% of the book having credit bureau score of more than 700. Salaried segment constituted around 79% of total AUM as on June 30, 2020 at consolidated level and is expected to constitute more than 75% going forward as well. While CRISIL notes that there is high competition from banks in this segment, CRISIL believes that the ability of the group to turnaround cases fast and offer convenience in terms of offering products as per the suitability of the needs of the customers by virtue of being a tech driven enterprise will hold the group in good stead. * Experience of promoters and top management in the retail lending business The founders of Loantap group, Mr Satyam Kumar and Mr Vikas Kumar have significant experience complementing the business model of the group. Mr Satyam Kumar, CEO & Co-founder is a senior banking professional having over 20 years of experience in retail lending to salaried customers space. Before starting Loantap, he was National Head-Mortgages at IndusInd Bank where he was responsible for building a loan book of more than Rs 5,000 crore in Loan against property (LAP) segment. He also held multiple senior leadership positions in product, business and credit at ICICI Bank with the last stint being Regional Head-Mortgage. Mr Vikas Kumar, CTO & Co-founder is having more than 21 years of experience in technology and data science. He was also the co-founder of Brainvisa Technologies (a leading E-learning company). The promoters have also been very successful in building a strong management team with rich experience. Mr. Amit Tewary, COO is also a senior banker with over 21 years of experience, primarily in retail lending and led large teams across Business Development, Credit & Risk, Operations and Debt Service Management at ICICI Bank. Furthermore, the CRO of Loantap group, Mr. Ashish Date has over 20 years of experience in retail lending space in risk management, credit analysis and debt services management. Given their significant experience, the management is focused on putting in place sound systems and risk management processes at an early stage itself. The group has invested significantly in analytics capability, underwriting capabilities, data science, and risk analytics. CRISIL believes that the experience of the promoters and management will stand Loantap group in good stead as it scales up its portfolio. Weaknesses * Earnings profile currently constrained amidst elevated operating expenses Owing to nascent stage of operations, operating expenses of the group remained high due to heavy investments in setting up technology infrastructure and hiring of several employees at senior management level. While the company turned profitable in fiscal 2020 with the profit after tax of Rs 0.3 crore at the consolidated level, it continued to report loss at profit before tax (PBT) level which was Rs 0.1 crore. Having said that, as per the provisional financials, the group turned profitable even at PBT level with it reporting a PAT of Rs 0.7 crore in Q1 FY21. On a standalone level, LCPPL has reported profits in fiscal 2019 and 2020. However, earnings profile continued to remain constrained due to high operating expenses which was at 9.5% of average total managed assets in fiscal 2020. Nevertheless, owing to high reliance on technology for smooth operations, the group has the ability to achieve operating efficiencies faster and hence operating expenses are expected to be moderate going forward, once the group gets back on the growth trajectory. Furthermore, yield remained adequate with IRR ranging from 18%-24% across all segments, thereby supporting the earnings profile. However, the funding cost of the group was high at around 15% constraining the net interest margin. In terms of credit cost, the group has been able to keep it under control as it has remained below 1% in the last two fiscals. The credit costs stood at 0.6% during fiscal 2020. Having said that, the loan book is not yet seasoned and hence credit costs may increase over the medium term. This coupled with the impact on growth owing to covid-related economic challenges is likely to pose challenges from earnings point of view. Therefore, earnings profile hinges upon the ability of Loantap to scale up the book thereby benefiting from operating leverage while also managing its credit costs. These will remain key monitorables in the medium term. * Relatively high cost of funding with low diversification in resource profile The resource profile of the group is concentrated with 71% of loans from NBFCs largely due to the nascent stage of operations. Further, the bank funding is concentrated with a single bank. Consequently, the group's funding cost remains relatively high with the group raising around Rs 215 crore since inception till Mar-20 at an average borrowing rate of 15%. CRISIL notes that the group is in talks with few public sector banks to access funds through PCG scheme which will diversify the lender base of the group. Nevertheless, the same needs to be seen, therefore, the ability of the group to diversify its resource profile and bring down its borrowing cost will remain a key monitorable. * Limited track record of operations; therefore asset quality performance needs to be seen Loantap group has put in place credit risk management systems and policies using a blend of technology and conventional approach to underwrite the loans. The group has a proprietary credit risk model, which provides score for each application filed by analyzing customer through bank statement, credit bureau scrub data, behavioural spends etc. for the initial assessment. Further, the group refines the model based on the performance of the portfolio/collections experience. Post the initial assessment done by the model, each application is manually assessed by the credit officer wherein personal discussions with the customers and field verification through third party agents take place, post which, the final lending decision is taken. Furthermore, in the personal loan salaried class segment, the group targets only those customers who are working in formal organized sector or government sector with the grade being greater than 3 & 4 and having a minimum income of Rs 30,000 (Increased to Rs 40,000 post Covid-19) per month, therefore, providing additional comfort. The asset quality in terms of 90+ dpd has remained below 4% since inception. The 90+ dpd stood at 3.6% as on March 31, 2020, at the consolidated level. Even after including last 12 months write-offs, the adjusted 90+ dpd was comfortable at 3.9% and 4.1% at consolidated and standalone level, respectively, as on March 31, 2020. Nevertheless, as the scale up in loan book has been substantial in the last two fiscals, the seasoning of the loan book remains limited. This is evident with the 90+ dpd, on a 1 year lagged basis, being high at 6.6% as on same date. Furthermore, while the group has managed its salaried personal loan book quite well with 90+ dpd at the group level being below 3% since inception, it has faced challenges in non-salaried segment in the past with 90+ dpd at 11.7% as on September 30, 2019 which later improved to 7.9% as on March 31, 2020. However, CRISIL also notes that the group has also shown resilience during lockdown period with collection efficiency being more than 70%3 throughout lockdown which improved to 82%3 for July 2020 and further to 91%3 for the month of August 2020. Therefore, the ability of the group to manage its collections especially now that moratorium period is over as well as asset quality metrics as the portfolio scales up will remain a key monitorable. |
| Liquidity Adequate |
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Asset-liability maturity profile of the company is comfortable as on July 31, 2020 with positive mismatches across the buckets up to 1 year. Loantap has cash and liquid investments of Rs 29.9 crores as on August 31, 2020, covering 2 months of cash outflows of Rs 27.7 crore. Further, the collection efficiency has remained more than 70% throughout lockdown which improved to 82% for July 2020 and further to 91% for the month of August 2020. Therefore, the liquidity position of the group is expected to remain adequate. The group has also successfully concluded a portfolio direct assignment transaction recently thereby increasing its liquidity position to Rs 50 crore as on September 10, 2020, which covers 3 months of cash outflows worth Rs 41 crore. |
| Outlook: Stable |
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CRISIL believes the Loantap group will maintain its healthy capitalisation metrics over the medium term. However, asset quality performance will be demonstrated only over time and profitability is likely to remain low due to high operating expenses and borrowing costs. |
| Rating Sensitivity factors |
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Upward factors: * Sustainability in asset quality with 90+ dpd being below 3% in the medium term * Improvement in earnings as the portfolio scales up with RoMA of more than 2% * Demonstrated sustained reduction in cost of borrowings Downward factors: * Any adverse movement in asset quality with 90+ dpd increasing beyond 5% leading to impact on the earnings profile * Moderation in capitalisation metrics with significant jump in adjusted gearing while scaling up the portfolio |
| About the Company |
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LCPPL, formerly known as Lotus Sree Filco Pvt Ltd (LSFPL) is a wholly owned subsidiary of Loantap Financial Technologies Ltd (LFTL). LFTL started off as an online market place in May 2016 with focus on lending customized personal loan products to salaried customer segment. LSFPL was a registered company since 1996 but was dormant from 2010 until 2016. In 2016, LFTL acquired LSFPL with around 24% stake which was later increased to 100% and started originating unsecured personal loans for salaried customers from July 2016 on its book. Later on from April 2017, it started providing MSME financing to self-employed customers as well. As on June 30, 2020, around 80% of the portfolio constituted the unsecured personal loan segment and rest was towards MSME financing. |
| Key Financial Indicators Consolidated | ||||||||||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||
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| Annexure - List of entities consolidated | ||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||
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| Links to related criteria |
| CRISILs Bank Loan Ratings - process, scale and default recognition |
| Rating Criteria for Finance Companies |
| CRISILs Criteria for Consolidation |
| For further information contact: | ||||||
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