Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities and non convertible debentures of Mintifi Finserve Private Limited (Mintifi) to ‘CRISIL BBB+/Positive’ from ‘CRISIL BBB/Stable’.

 

The upgrade in in long-term ratings for Mintifi is backed by the substantial strengthening of capitalisation metrics following the recent capital infusion, continued growth momentum in the loan portfolio, significant improvement in profitability metrics and comfortable asset quality metrics. Further, the company has increased its share of secured portfolio on an overall basis which is expected to support the asset quality going forward.

 

The positive outlook reflects CRISIL Ratings expectations of a substantial improvement in scale in fiscal 2024 which is expected to translate into better operating efficiencies and hence a substantial improvement in the earnings profile further.

 

The capitalisation metrics for Mintifi have improved considerably following the recent capital raise of around Rs 900 crores in March 2023, of which Rs 700 crores was primary equity infusion. This along with the better than anticipated profits at Rs 35 crores for fiscal 2023 have almost tripled the networth of the company to ~Rs 1149 crores as on March 31, 2023, as against Rs 416 crores as on March 31, 2022. The gearing too therefore, remains comfortable at 0.5 times and is expected to remain under 2 times over the medium term.

 

While the capital infusion happened in March 2023, the growth momentum of the company remained strong with assets under management (AUM) rising by 188% to Rs 1,183 crore as on March 31, 2023, as against Rs 410 crore as on March 31, 2022. Given the shorter tenor nature of the loans, the disbursements growth was sharper increasing to Rs 5,516 crores for fiscal 2023, as against Rs 1,320 crores the previous fiscal. The growth was supported by the ability of the company to deepen relationships with existing anchors and add new anchors. Consequently, the share of the top 25 anchors to the overall AUM has reduced to 55% as on March 31, 2023.

 

Despite the growth and focus on the anchor-based model of operation, the asset quality metrics have remained comfortable and continued to improve with 90+ dpd at 0.9% as on March 31, 2023- (1.8% adjusted for last 12 months write offs). Asset quality is largely supported by the differentiated business model with strong systems and processes in place.

 

With the improvement in the asset quality, the credit costs of the company (as a percentage of average total assets) improved to 1.3% for fiscal 2023. This clubbed with improving cost of funds has supported the earnings profile. The company raised incremental debt of Rs 432 crores in second half of fiscal 2023 at an average borrowing cost in the range of 9.75%-10%. This resulted in profit after tax of Rs 35 crores for fiscal 2023 reflecting an ROA of 2.9% as compared to 0.1% for fiscal 2022. Nevertheless, as the company has multiple branches and covers its regions of operations through own employee, the cost to income ratio was elevated at 69% at group level (58% excluding distribution business). However, this too has improved considerably over the past couple of fiscals. Going forward with anticipation of an improvement in scale, the cost to income ratio is expected to improve. This clubbed with the expected healthy net interest margins (NIMs) and controlled credit costs is expected to translate into a substantial improvement in ROA.

Analytical Approach

CRISIL Ratings has evaluated the credit risk profile of both Mintifi and its parent, Mintifi Pvt Ltd, collectively referred to as Mintifi group due to the significant operational linkages. Additionally, all equity raises are done at the parent company i.e., Mintifi Private Ltd, part of which is infused in Mintifi.

 

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

Key Rating Drivers & Detailed Description

Strengths:

Strong capital position

In March 2023, Mintifi group raised Rs 900 crore, which consisted of Rs 700 crore as primary equity infusion from new and existing set of investors. The equity raise, clubbed with positive internal accruals, boosted Mintifi’s networth to Rs 1,149 crore as on March 31, 2023, compared to Rs 416 crore as on March 31, 2022. Consequently, gearing profile also remained comfortable at 0.5 times as on March 31, 2023. (March 31, 2022: 0.4 times). Going forward, capitalisation profile of Mintifi is expected to remain comfortable with the group leveraging onto its current position to grow its loan book further. On a steady state basis, gearing is expected to under 3-3.5 times.

 

Differentiated business model with focus on established corporates as anchor partners

Mintifi operates in a differentiated business model, with greater focus on funding large corporates with an established track record in India. It partners with corporates and offers supply chain financing (SCF) across their distribution network. The main product, a short-term revolving SCF, is spread over a short tenure of upto 90 days and ensures control over end-use of funds and offers higher visibility on cash flows of the customer. This product formed around 92% of the portfolio as of March 31, 2023, vis-à-vis 40% as of March 2020, and the share should lie in the range of 90-95% going forward in the near to medium term. Since inception, the group has maintained relationships with multiple corporates and is continuously increasing its partner base. Resultantly, the consolidated AUM has grown to Rs 1,183 crore as on March 31, 2023, from Rs 410 crore as on March 31, 2022, and Rs 141 crore as on March 31, 2021. Furthermore, the group caters to a vast end-user base from multiple industries such as paints, garments, cables, kitchenware, education, lubricants, automobiles and electronics.

 

The founders have relevant experience in handling three core functions – formation of corporate tie-ups, credit risk management, and use of technology and analytics. Background of the promoters, the experienced management team and healthy relationships in the market, along with an ability to raise capital, should help the group scale up its portfolio. The management is also focused on building good governance systems. It has an experienced board with one investor director and has also appointed reputed auditors. While growth momentum should sustain, the company will remain a modest player in the overall financial ecosystem. Given the fact that the scale up is linked to the ability to tie up with more corporates as anchors and subject to competition, significant scale up in the portfolio remains a key monitorable.

 

Significant improvement in profitability led by high growth

Driven by Mintifi’s ability to onboard marquee set of additional anchors, and the short-tenured nature of the loan product, disbursements of the group surged by more than eight times during fiscal 2023 to Rs 5,516 crore (Rs 1,320 crore: Fiscal 2022).

 

Credit costs arising out of the said disbursements also remained under control, with Mintifi reporting improvement in 90+ dpd and overall credit costs to 0.9% and 1.3% respectively as on March 31, 2023, as against 1.4% and 2.1% respectively as on March 31, 2022.

 

Furthermore, during fiscal 2023, Mintifi raised incremental debt at an average borrowing cost in the range of 9.75%-10%, which clubbed with improvement in above listed operating metrics led to net profit zooming to Rs 35.3 crore during fiscal 2023, as compared to Rs 0.3 crore in fiscal 2022.

 

Consequently, RoMA for Mintifi, on a consolidated basis improved to 2.9% during fiscal 2023 (0.1%: Fiscal 2022).

 

Going forward, ability of Mintifi to sustain healthy profitability metrics whilst accelerating its loan book growth remains a key monitorable. The profitability shall also be dependent on Mintifi’s ability to onboard quality anchor partners, which reduces the risk component and the consequent need for higher credit costs, thus aiding profitability.

 

Weakness:

Inherent vulnerability of asset quality metrics given segment of operation

The group's AUM primarily consists of loans to small and medium enterprises (SME). The SME segment is vulnerable to cash flow cyclicality, which could result in potential slippages. Therefore, asset quality remains vulnerable to increases given the credit profile of the underlying borrower segment. Therefore, the ability to maintain the credit cost while scaling up the loan portfolio remains a key monitorable. Nevertheless, CRISIL Ratings notes the ability of Mintifi to onboard quality and well-established anchor partners to its portfolio, which reduces the exposure risk upto some extent as the distributors engaged with the particular anchor have also shown comfortable debt repayment track record.

 

Additionally, the group has also increased its focus on secured lending with around 32% of the AUM as on March 31, 2023, being partly secured either through bank guarantee (BG), cash collateral (CC) or security deposit as compared to nil in March 2020. Further, the group has put in place strong systems and processes which provide support. Mintifi has deployed tech-led interface across its operation functions to streamline the disbursement and collection procedures, along with weekly risk monitoring of all distributor partners sourced via a particular anchor.

 

Consequently, performance of the overall book remained comfortable with 90+ dpd and adjusted 90+ dpd of 0.9% and 1.8% respectively as on March 31, 2023, as against 1.4% and 3.1% respectively as on March 31, 2022. Going forward, ability of the group to maintain the comfortable asset quality metrics remains a key monitorable.

 

Liquidity: Adequate

Asset-liability profile of the company was comfortable as on March 31, 2023, with positive mismatches across all time buckets, supported by the sizeable on-balance sheet liquidity maintained by the company. As a practice, the company plans to maintain cash and bank balances aggregating to 1.5-2 months of debt repayments and expected disbursements at all points in time. As on March 31, 2023, Mintifi carried on-balance sheet liquidity of Rs 580 crore in the form of cash and bank balances and mutual fund investments, against which it had debt repayments of Rs 248 crore scheduled for the next six months.

Outlook: Positive

The positive outlook reflects CRISIL Ratings expectation of continued high growth in loan portfolio in fiscal 2024 along with expectations of a substantial improvement in the earnings profile. Capitalisation metrics and asset quality are expected to remain comfortable

Rating Sensitivity factors

Upward factors:

* Sustainability in gross NPA level below 3.5% in the medium term

* Improvement in the earnings profile while increasing the scale of operations, with return on assets remaining above 2.5% on a sustained basis

 

Downward factors:

* Increase in steady state gearing above 4 times or inability to bring in capital as per plan, resulting in impact on operational and financial parameters

* Sharp increase in gross NPA and consequently, credit costs, in the medium term thereby leading to an impact on the earnings profile of the group

About the Company

Mintifi is a wholly-owned non-banking finance company (NBFC) of Mintifi Pvt Ltd that was set up in January 2017 as an online marketplace connecting SMEs with lenders. The group started its own NBFC named Mintifi Finserve Pvt Ltd in January 2019. The company focusses on lending to micro-SMEs in India. The company has built a technology platform that enables financing to distributors/ dealers of various corporate partners across their supply chain network. However, the company has also adopted the traditional branch led model for credit underwriting, credit monitoring and collections. Currently, the company has more than 100 branches (including satellite branches) throughout India headed by people having significant credit experience.

Key Financial Indicators

As on/for the period ending	Unit	Mar-23*	Mar-22	Mar-21
Total assets	Rs crore	1,793	645	212
Assets under management (AUM)	Rs crore	1,184	410	141
Total income	Rs crore	229	53	24
Profit after tax	Rs crore	35.3	0.3	(5.5)
90+dpd (as a % of AUM)	%	0.9	1.4	2.9
Adjusted gearing	Times	0.5	0.4	0.6
Return on managed assets	%	2.9	0.1	Negative

*Provisional; (): Negative

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
INE07KI07047	Non-convertible debenture	30-Aug-22	9.70%	6-Sep-23	30	Simple	CRISIL BBB+/Positive
NA	Non-convertible Debentures^	NA	NA	NA	21	Simple	CRISIL BBB+/Positive
INE07KI07013	Non-convertible Debentures	28-Jul-21	12.70%	25-Jul-23	10	Simple	CRISIL BBB+/Positive
INE07KI07021	Non-convertible Debentures	28-Jul-21	12.70%	25-Jul-23	10	Simple	CRISIL BBB+/Positive
INE07KI07039	Non-convertible Debentures	30-Jul-21	13.50%	29-Jul-23	15	Simple	CRISIL BBB+/Positive
NA	Overdraft Facility	NA	NA	NA	11	NA	CRISIL BBB+/Positive
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	1.75	NA	CRISIL BBB+/Positive
NA	Term Loan	NA	NA	19-Sep-25	45.83	NA	CRISIL BBB+/Positive
NA	Term Loan	NA	NA	3-Mar-24	2.08	NA	CRISIL BBB+/Positive
NA	Term Loan	NA	NA	19-Jul-24	12.67	NA	CRISIL BBB+/Positive
NA	Term Loan	NA	NA	10-Sep-24	10	NA	CRISIL BBB+/Positive
NA	Working Capital Demand Loan	NA	NA	NA	16.67	NA	CRISIL BBB+/Positive

 ^Not yet issued