Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL BBB/Stable' rating to the bank facility of Mangal Credit and Fincorp Limited (MCFL). CRISIL Ratings has also reaffirmed its 'CRISIL BBB/Stable’ ratings on the debt instrument of MCFL.

 

The rating is driven by comfortable capital position, improving asset quality metrics, healthy profitability metrics subject to scaling of operations. These strengths are partially offset by the moderate scale of operations with geographical concentration and average resource profile.

 

MCFL was incorporated in the year 2012 after acquiring a 50-year-old company TAK Machineries & Leasing Ltd (TMLL), a company dealing in machinery and its leasing. The company was acquired by its current promoter in 2012 i.e., Mr. Meghraj Jain who has vast experience in leasing & finance related business and has over 25 years of experience in Jewellery business. Company is led by professional CEO, i.e., Mr. Manish Rathi who has more than 17 years of experience in BFSI. Furthermore, the board and top management profile of MCFL comprises of professionals having extensive experience in banks, non-banking finance companies (NBFC’s), Micro Finance institutions, Housing Finance companies (HFC’s), Auditing and consulting firm etc.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has evaluated the standalone business and financial risk profile of MCFL.

Key Rating Drivers & Detailed Description

Strengths:

Comfortable capital position

MCFL’s capital position is strong in relation to its current and expected scale of operations. As of March  31, 2023, the company has networth of Rs 111.9 crore and comfortable gearing at 0.8 times as against net worth of Rs 105.9 crore and gearing of 0.3 times as on March 31, 2022. The capital position of the company is supported by timely capital infusion by promoters and healthy net accruals. Furthermore, as secured segment contributes 49% of assets under management, the lower asset side risk, supports capitalisation. Since Fiscal 2015, the promoters have infused Rs 40.0 crore in the company. The last capital infusion of Rs 12.0 crore was done in Fiscal 2018. Based on the discussion with the management, we understand that the promoters are willing to infuse capital as and when required by the company. CRISIL Ratings believes that MCFL will remain adequately capitalized with gearing also remaining at comfortable level over the medium term.

 

Improving asset quality

The 90+ dpd position of the company has consistently improved from 4.9% in fiscal 2021 to 2.4% in fiscal 2022 and to 2.2% in fiscal 2023. The 90+ dpd comprises 0.83% in SME portfolio which is 75% of total loan book of the company and 1.39% in gold loan which is 25% of total loan book of the company. The major contribution to the 90+ dpd as on March 31, 2023, is from the gold loan segment. The asset side risk and chances of loss is very low given the segment is secured by gold which is highly liquid and is in the lender’s possession. The total collections have been consistently more than 82% in fiscal 2023, which comprised of collection from SME portfolio more than 96% and gold more than 54%. The asset quality performance of the company has witnessed volatility in the past on account of imposed lockdown due to pandemic, however the company was able to improve its 90+ dpd during the same period by focusing on collections. As a part of conservative approach, and to diversify risk, the company has reduced is average ticket size from Rs. 0.62 crore in fiscal 2020 to Rs 0.05 crore in fiscal 2023. Furthermore, as part of one-time restructuring, the company has not restructured any accounts till date. The ability of the company to sustain its asset quality performance while scaling up its portfolio will be critical for the rating.

 

Healthy profitability metrics

The company reported profit after tax of Rs 7.9 crore in fiscal 2023 as compared to 6.1 crore in fiscal 2022. In terms of profitability, the average return on assets for MCFL for the past 3 years stood comfortable at 4.9%. The operating cost of the company elevated to 3.3% in fiscal 2023 from 2.6% on fiscal 2022. The operating expense is further expected to remain elevated due to new branch openings and expansion of operations, though the existing branches will help generating positive returns. However, with scaling up of portfolio and expansion of branches in current geographies the ability of the company to sustain its earnings profile will remain key monitorable.

 

Weaknesses:

Moderate scale of operations with geographical concentration

MCFL’s operations have grown significantly over the past 3 years. The company displayed 55% growth in fiscal 2023 and 26% growth in fiscal 2022 which helped the company to achieve moderate book size of Rs 161.1 crore in fiscal 2023 from Rs 103.7 crore in fiscal 2022 (Rs 82.5 crore in fiscal 2021). The asset under management comprises a wide range of asset classes including business loans (49%), gold loans (25%) and loan against property (24%) and personal loans (2%). Currently the secured and unsecured portion is in the ratio of 49:51 compared to 38:62 in fiscal 2022. The company has plans to further increase its secured portfolio to more than 50% by fiscal 2024.  However, the composition is more likely expected to remain similar in current fiscal. Additionally, operations are geographically concentrated in 3 states in western region of India, Maharashtra, Rajasthan, and Gujarat. Maharashtra dominates the portfolio with over 90%. The management has plans to tap into newer geographies i.e., Odisha and West Bengal and also, expand the operations in the existing regions. The ability of the company to scale up its loan book in the existing geographies and newer geographies while sustaining its asset quality performance will remain key monitorable.

 

Average resource profile

The company’s resource profile consists of bank loans (71%), loans from promoters (21%) and Redeemable NCDs (8%) of the total borrowings as on March 31, 2023. The cost of borrowing of the company as on March 31, 2023, stood at 7.6% as against 8.7% in Fiscal 2022. The company has raised funds from banks like Federal bank, State bank of India, South Indian Bank and City Union Bank. The management has  raised to support NCD of Rs 7.0 crore in fiscal 2023 at rate of 10.20% from High Networth Individuals (HNIs). Furthermore, to support AUM growth in fiscal 2024, company is in discussion with existing lenders as well as various govt backed financial institutions and banks (both PSU banks and SFBs). Additionally, is in discussion to enter in BC arrangement with NBFCs and SFBs. Resource profile also benefits from ability of promoters to infuse funds as and when required to support business growth. Nevertheless, the ability of the company to diversify its borrowing profile and increase the share of bank funding  and reduce overall cost of borrowing will remain key monitorable.

Liquidity: Adequate

MCFL’s asset-liability maturity profile was comfortable as on March 31, 2023, with positive mismatches across buckets up to 5 year. As on May 31, 2023, the company had liquidity of Rs 13.46 crore (including cash and cash equivalent and cash credit and working capital loan). Total debt obligation for 3 months is Rs. 4.3 crore and total monthly operating expenses Rs 2.1 crore. The liquidity cover of the company for next 3 months including the 95% collection stood at 1.0 time and considering the rollover benefit, it stood at 3.2 times. Liquidity is further supported by commitment of support by promoters at the time of exigency.

Outlook: Stable

CRISIL Ratings believes that MCFL will benefit from its comfortable capitalisation metrics over the medium term.

Rating Sensitivity factors

Upward factors:

* Asset quality remains stable with 90+ dpd being lower than 2% on steady state basis

* Ability to raise external funding though bank loans and debt instruments

* Significant improvement in scale of operations from present level with steady growth maintained in portfolio over medium term

 

Downward factors:

* Any adverse movement in asset quality with 90+ dpd exceeding 4% and its consequent impact on earnings profile

* Moderation in capitalisation metrics with a significant increase in gearing while scaling up the portfolio.

About the Company

Mangal Credit and Fincorp Limited (MCFL) is a non-deposit non-systemically important NBFC. Mangal Credit & Fincorp Limited was established in the year 2012. MCFL acquired TAK Machineries & Leasing Ltd (TMLL), a company dealing in machinery and its leasing. It was acquired by the existing promoters in 2013. MCFL is based in Mumbai, which is engaged in the business of providing different types of loans to Micro, Small and Medium Enterprises in the form of business loan, loan against property, gold loan and personal loan.

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  levels	Rating assigned with outlook
NA	Non-convertible debentures^	NA	NA	NA	5	Simple	CRISIL BBB/Stable
INE545L07010	Non-convertible debentures	23-Feb-23	10.60%	23-Feb-25	10	Simple	CRISIL BBB/Stable
INE545L07028	Non-convertible debentures	23-Feb-23	10.00%	25-Feb-24	10	Simple	CRISIL BBB/Stable
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	75	NA	CRISIL BBB/Stable

^Yet to be issued