Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BBB-/Stable’ rating to the Rs 100 crore bank loan facility of Mintifi Finserve Pvt Ltd (Mintifi).

 

The rating continues to reflect Mintifi’s healthy capitalisation metrics and easily scalable business aided by its corporate-based Supply Chain Financing model. These strengths are partially offset by the limited track record of operations and the inherent vulnerability of asset quality owing to the high share of unsecured loans, which in turn could impact profitability.

 

Amidst the Covid-19 pandemic and its consequent challenging macro-economic environment, asset quality metrics as measured by 90+ dpd and adjusted 90+ dpd (including last 12 months write-offs) increased to 2.9% and 6.7%, respectively as on Mar-21 at consolidated level (including partner book) as against 1.1% and 3.3%, respectively as on Mar-20. At the own NBFC book level as well, 90+ dpd and adjusted 90+ dpd (including last 12 months write-offs) increased to 1.9% and 4.4%, respectively as on Mar-21 as against 0% and 1.9%, respectively, as on Mar-20. Mintifi group has also restructured around 11-12% (~10% under restructuring 1.0 and ~1% under 2.0) of its own book portfolio as on June 20, 2021. Majority of the stress for Mintifi has come from its “Term Loan” product and segments such as Hotels, Restaurants, Travel Agents and Payment Aggregators which have been adversely impacted amidst Covid-19 and bulk of the restructuring too has been in these segments.

 

However, Mintifi’s key focus has predominantly been on Supply Chain Financing in collaboration with corporate partners in India post March 2020. Mintifi currently works with 50+ companies like Tata Motors, TTK Prestige, Nippon Paints, Finolex Cables, FirstCry, and Bridgestone India Pvt Ltd to provide Supply Chain Financing across the distribution network of these corporate partners. Mintifi has direct commercial agreements with the companies including “Stop Supply” which acts as a key deterrent for borrowers to default. Consequently, Supply Chain Financing product’s adjusted 90+ dpd (including last 12 months write-offs) has been comfortable at 2.3% and 1.2% at consolidated level (including partner book) and own book level, respectively, even during the COVID -19. Given the shift in focus towards SCF, the share of the same has increased in the last one year to 70% as on April 2021 as compared to 40% as on March 31, 2020. Segmentally the group is well diversified across multiple industries including FMCG, Pharma, Kitchenware, Consumer Durables and Auto. Mintifi has significantly reduced its exposure in segments like hotels, restaurants, airlines and payment aggregators which have been adversely affected due to Covid-19. The current share of these segments have dropped to around 10% as on Apr-21, respectively, from 25% as on Mar-20. Additionally, the group has focused on secured lending with around 40% of AUM as on May-21 being partly secured either through bank guarantee (BG), cash collateral (CC) or first loss default guarantee (FLDG) as compared to 0% secured book in Mar 2020. Furthermore, Mintifi has also enhanced its existing risk management and collection infrastructure by investing significantly in technological platforms along with tightening its underwriting norms.

 

Consequent to the efforts, the collection efficiencies for the group improved gradually. The monthly collection efficiencies improved to 90-97%[1] from Jan-21 to Apr-21 as opposed to a low of 16%1 in April 2020. However, with the onset of the second wave and its consequent lockdowns, collections were impacted in May 2021. Nevertheless, the gradual reopening of the lockdown has resulted in the collection efficiency in June 2021 exceeding the collection efficiency of Mar 21.

 

On the earnings front, the Group turned profitable at pre-provisioning level in fiscal 2021 at consolidated level. While primarily this was on account of reduction in operating expenses, the group has also been able to reduce their cost of funding which supported NIMs last fiscal. Since April 2020, the group has received total sanction of Rs 186 crores of debt funds with improving incremental funding rates. As the group increases focus on the supply chain financing line of business, yields would be marginally lower than term loans. Consequently, tight control over operating expenses, continue to maintain lower credit cost of key focused SCF portfolio, lower cost of funds and the ability to continue to report pre-provisioning profit remains a key monitorable. The group continued to report losses at profit before tax (PBT) level due to increased credit cost. For fiscal 2021, the credit costs remained elevated at 4.3% amidst the asset quality performance impacting bottom line. Going forward, earnings profile is expected to improve as supply chain financing has exhibited resilient performance in the last one year in turn keeping the credit costs under control and support profitability. Consequently, the ability of the group to turn profitable remains a key monitorable.

 

Capital position continues to remain comfortable with networth of Rs 124 crore and gearing of 0.6 time as on March 31, 2021 in relation to the current scale and size of the business. Capitalisation metrics have been supported by regular capital infusion with the company raising Rs 140 crores since inception with last raise of Rs 44 crores in Mar-21. Gearing metrics are not expected to exceed 3 times over the medium term. Additionally, the group is planning further equity raise in the current fiscal which would further support the credit profile.

[1] Collection efficiency = Current collection  + OD collection divided by Current Billing

Analytical Approach

CRISIL Ratings has evaluated the credit risk profile of both Mintifi and its parent, Mintifi Pvt Ltd, collectively referred to as 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 - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Comfortable capital position

Capitalisation metrics continues to be comfortable in relation to the current scale and size supported by regular capital infusion. The group has raised about Rs 140 crore of equity since inception with recent equity raise of Rs 44 crore taking place in Mar-21 with contribution coming from private equity investors. Consequently, the networth of the group stood at Rs 124 crore and that of Mintifi at Rs 84 crore as on March 31, 2021. Gearing too was comfortable at 0.6 time and 0.8 time for the group and Mintifi, respectively, as on March 31, 2021, and is expected to remain under 3 times at a consolidated level over the medium term. Capitalisation is expected to remain comfortable over the medium term, supported by improvement in internal accruals, thus providing a cushion against asset-side risks.

 

Differentiated business model with focus on established corporates as anchor partners

Mintifi has a differentiated business model, which is more reliant on leading corporates with an established track record of operations in the Indian market. It focusses on partnering with corporates and providing supply chain financing across the distribution network of these corporates. Mintifi’s prime focused product remains short-term revolving “SCF” with maturity being upto 90 days as it ensures control over end usage of funds along with having higher visibility on the cash flows of the customer. The share of “SCF” was around 70% as on Apr-21, increased from 40% as on Mar-20 and it is expected to be at 85 - 90% going forward.

 

Since inception, the group has built relationships with multiple corporates partners and is continuously increasing the partner base. Amidst the increasing partnerships, the assets under management (AUM) of the group has grown to Rs 141 crore as on March 31, 2021 from Rs 105 crore as on March 31, 2020 at a consolidated level. Out of Rs 141 crore, Rs 137 crore was own book with the remaining belonging to lender partners’ books.

 

Furthermore, the group is funding multiple industry categories like Paints, Garments, Cables, Kitchenware, Education, Lubricants & Electronics etc. and also catering to clients from different sectors providing diversification in the sectoral exposures.

 

The founders of Mintifi have relevant experience in handling three core functions of the business model of tying up with corporates, credit risk management and use of technology and analytics. The promoters' background, experienced management team and relationships in the market, along with an ability to raise capital should help in scaling up of portfolio going forward. The management is also focused on building good governance systems. It has an experienced Board with one investor director. The group has also appointed reputed auditors.

 

While growth momentum is expected to continue over the medium term, the company will remain a modest player in the overall financial ecosystem.

 

Weakness:

Limited track record of operations

The group commenced operations as a market place from fiscal 2017 with co-lending arrangements with lender partners. However, on-balance sheet lending started in January 2019. As on March 31, 2021, the AUM of the group has grown to Rs 141 crore of which around Rs 137 crore is own book.

 
Given the fact that the scale up is linked to the ability to sign up with more corporates as anchors and subject to competition, the ability to significantly scale up the portfolio while managing credit costs and operating expenses and therefore profitability would be demonstrated over the medium term.

 

Inherent vulnerability of asset quality

Asset quality metrics weakened during last fiscal amidst covid-19 pandemic and its consequent challenging macro-economic environment. 90+ dpd and adjusted 90+ dpd (including last 12 months write-offs) increased to 2.9% and 6.7%, respectively as on Mar-21 at consolidated level (including partner book) as against 1.1% and 3.3%, respectively as on Mar-20. At the own NBFC book level as well, 90+ dpd and adjusted 90+ dpd (including last 12 months write-offs) increased to 1.9% and 4.4%, respectively as on Mar-21 as against 0% and 1.9%, respectively, as on Mar-20. Mintifi group has also restructured around 11-12% (~10% under restructuring 1.0 and ~1% under 2.0) of its own book portfolio as on June 20, 2021.

 

Majority of the stress for Mintifi has come from its “Term Loan” product in segments like Travel Agents, Hotels, Restaurants and Payment Aggregators. These segments have been adversely impacted due to pandemic. However, Mintifi’s key focused product is “Supply chain financing (SCF)”’product where the asset quality performance was comfortable with adjusted 90+ dpd (including last 12 months write-offs) being at 2.3% and 1.2% at consolidated level (including partner book) and own book level, respectively, even during pandemic fiscal. Even in restructured portfolio, bulk of the contribution is of “Term Loan” product and the aforementioned segments. However, with the group’ss continued focus on “supply-chain financing” the share of the term loans portfolio has dropped to around 30% as on Apr-21 as compared to 60% as on Mar-20. Even segmentally the share of Hotels, Restaurants, Airlines and Payment Aggregators has dropped to around 10% as on Apr-21 from 25% as on Mar-20.

 

Additionally, Mintifi has focused on secured lending with around 40% of AUM as on May-21 being partly secured either through bank guarantee (BG), cash collateral (CC) or first loss default guarantee (FLDG) as compared to 0% secured book last fiscal. Furthermore, Mintifi has also enhanced its existing risk management and collection infrastructure by investing significantly in technological platforms along with tightening its underwriting norms. Consequent to the efforts, the collection efficiencies for the group improved gradually. The monthly collection efficiencies improved to 90-97%[1] from Jan-21 to Apr-21 as opposed to a low of 16%1 in April 2020. However, with the onset of the second wave and its consequent lockdowns, collections were impacted in May 2021. Nevertheless, the gradual reopening of the lockdown, has resulted in the collection efficiency improving in Jun-21 exceeding the collection efficiency of Mar-21.

 

Having said that, the group's AUM primarily consists of small and medium enterprises (SME) loans. The SME segment is vulnerable to cash flow cyclicality, which could result in potential slippages, and given that majority of the loan portfolio is of unsecured nature, recovery could also be limited.

 

Mintifi has put in place robust systems and processes to monitor asset quality metrics. Mintifi has further enhanced its systems and processes. The group creates an ecosystem where it builds relationship with corporates having large distribution channel and then targets these distributors by providing supply chain financing (SCF). The underwriting is supported by analysis of the cash flow cycle of the borrowers by use of traditional data sources and more importantly underlying flow based data points, which are made available to the group given their relationships with corporates.

 

However, asset quality remains vulnerable to sharp increases given the credit profile of the underlying borrower segment. Therefore, the ability to maintain asset quality while scaling up the loan portfolio remains a key monitorable.

 

Weak earnings profile

The group turned profitable at pre-provisioning level in fiscal 2021 at consolidated level. While primarily this was on account of reduction in operating expenses, the group has also been able to reduce their cost of funding which supported net interest margins (NIMs) last fiscal. Since April 2020, the group has received a sanction of around Rs 186 crores of debt funds with improving incremental funding rates. As the group increases focus on the supply chain financing line of business, yields would be marginally lower than term loans and therefore, continuous improvement in the cost of funds remains to be seem. Furthermore, while operating expenses have reduced, they still remained high. Consequently, tight control over operating expenses as the group scales up and the ability to continue to report pre-provisioning profit remains a key monitorable.

 

The group continued to report losses at profit before tax (PBT) level due to increased credit cost. For fiscal 2021, the credit costs remained elevated at 4.3% amidst the asset quality performance impacting bottom line. However, losses have been lower as the group’s customer acquisition cost is low. The group sources 100% of its business from its partnership with various corporates partners which reduces operating cost and fraud risks. Mintifi reported a net loss of Rs 5.5 crore and Rs. 3.3 crore at consolidated and standalone level, respectively in fiscal 2021.

 

Going forward, earnings profile is expected to improve as supply chain financing has exhibited resilient performance in the last one year which should keep credit costs under control which would support profitability. Consequently, the ability of the group to turn profitable will mostly be dependent on sustainable improvement in the economy and ability to control the credit cost and CRISIL Ratings will closely monitor the same.

[1] Collection efficiency = Current collection  + OD collection divided by Current Billing

Liquidity: Adequate

Asset-liability mismatch of the company is comfortable as on March 31, 2021 with positive mismatches across the buckets up to 1 year. As a practice, the group company plans to maintain cash and liquid investments (fixed deposits and liquid mutual funds) aggregating 2-3 months of debt repayments and expected disbursements at all points in time.

 

Mintifi has total debt repayment (including interest expense) of Rs 16.9 crore falling due between June-August 2021, against which the group had cash and cash equivalents of Rs  54.2 crore as on May 31, 2021 and unutilised working capital bank lines of Rs 13 crore as on same date. Mintifi has also raised around Rs 186 crore since FY 20 at incrementally lower cost of funding.

Outlook: Stable

CRISIL Ratings believes the group will benefit from its experienced promoters and management and will maintain its healthy capitalisation metrics over the medium term. However, asset quality performance will be demonstrated only over time and profitability is also likely to remain subdued with continued high operational expenditure.

Rating Sensitivity factors

Upward factors:

* Sustainability in adjusted 90+dpd (including 12 months write-offs) below 3.5% in the medium term

* Increase in scale of operations while maintaining the operational cost and improving earnings.
 
Downward factors:

* Increase in steady state gearing of above 4 times

* Sharp increase in adjusted 90+dpd (including 12 months write-offs) and consequently, credit costs, in the medium term

* Group continuing to report losses at PBT (profit before tax) level at consolidated level

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 37 branches (including satellite branches) throughout India headed by people having significant credit experience.

Key Financial Indicators

As on/for the period ending	Unit	Mar-21*	Mar-20
Total assets	Rs crore	211.7	211.7
Total assets under management (including partner book)	Rs crore	141.3	104.7
Total income	Rs crore	24.4	14.9
Profit after tax	Rs crore	-5.5	-5.7
90+ dpd (including partner book)	%	2.9	1.1
Adjusted 90+ dpd (including last 12 monts write-offs) (including partner book)	%	6.7	3.3
On-book gearing	Times	0.6	0.4
Return on assets	%	Negative	Negative

*Provisional

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (rs. Cr)	Complexity level	Rating outstanding with outlook
NA	Proposed long term bank loan facility	NA	NA	NA	62.57	NA	CRISIL BBB-/Stable
NA	Overdraft facility	NA	NA	NA	1.0	NA	CRISIL BBB-/Stable
NA	Term Loan	NA	NA	Nov-21	3.75	NA	CRISIL BBB-/Stable
NA	Term Loan	NA	NA	Mar-23	3.68	NA	CRISIL BBB-/Stable
NA	Term Loan	NA	NA	Aug-23	9.0	NA	CRISIL BBB-/Stable
NA	Term Loan	NA	NA	Mar-24	5.0	NA	CRISIL BBB-/Stable
NA	Working capital demand loan	NA	NA	NA	15	NA	CRISIL BBB-/Stable

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Mintifi Pvt Ltd	Full	Parent
Mintifi Finserve Pvt Ltd	Full	Subsidiary