Detailed Rationale

CRISIL Ratings has upgraded its ratings on the existing debt instruments and bank facilities of Mintifi Finserve Private Limited (Mintifi) to ‘CRISIL BBB/Stable’ from ‘CRISIL BBB-/Stable’.

 

The upgrade reflects an improvement in asset quality metrics and the breakeven achieved on a full year basis at a consolidated level. The group has reported consistent profitability since September 2021 and maintained strong capitalisation. The ratings however remain constrained by the limited track record of operations and inherent vulnerability of asset quality, given the high share of unsecured loans, which in turn could impact profitability.

 

Since the inception of Mintifi in 2017, assets under management (AUM) have grown to Rs 410 crore as on March 31, 2022, a growth of 190% year-on-year (3-year CAGR of 113%) at the group level. However, over the past two years, the group has shifted its focus towards supply chain financing (SCF) as against term loans. SCF thus formed 87% of the portfolio as on March 31, 2022, vis-à-vis 30% as on March 31, 2020, accounted for almost 92% of total disbursements since March 2020.

 

The term loan portfolio of the group was impacted during Covid wave 1 and 2 and their resultant lockdowns with asset quality metrics deteriorating. The asset quality metrics for the group inched up in terms of adjusted 90+ dpd (including 12 months write-offs) to 6.7% as on March 31, 2021 from 3.3% as on March 31, 2020 primarily driven by the impact on the term loan portfolio and exposure to sensitive sectors such as hotels, restaurants and travel agents.

 

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 100+ companies 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 90+ dpd and adjusted 90+ dpd (including last 12 months write-offs) has been comfortable at 0.7% and 1.4% at respectively, as on March 31, 2022.

 

Likewise, Mintifi has significantly reduced its exposure to segments such as hotels, restaurants, airlines and payment aggregators, which were severely impacted during the pandemic. These segments had a negligible share of around 2%  as on March 31, 2022, (down from 25% as on March 31, 2020). The group has also moved towards secured lending and has ensured that around 23% of the AUM as on March 31, 2022, was partly secured, versus nil as on March 31, 2020. The risk management and collection infrastructure has also been enhanced via investment in technological platforms and stronger underwriting norms.

 

Consequently, overall 90+ dpd and adjusted 90+ dpd improved to around 1.4% and 3.1%, respectively, as on March 31, 2022, as against 2.9% and 6.7% as on March 31, 2021. Continued comfortable asset quality metrics remains a key monitorable.

 

Earnings profile is supported by the improvement in asset quality metrics and consequent improvement in the credit costs. Additionally, with the improvement in borrowing rates, and control operating expenses, the group has been able to reports sustained monthly profits since September 2021 and became profitable on a full-year basis in fiscal 2022.

 

Capitalisation metrics were comfortable supported by equity of around Rs 439.5 crore raised by the group since inception (Rs 300 crore infused in February 2022). Consequently, networth increased to Rs 416 crore and gearing was low at 0.4 time as on March 31, 2022. Gearing should remain under 3 times in the medium term.

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 - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Comfortable capital position

Capitalisation metrics are commensurate with the current scale and size, supported by regular capital infusion. The group has raised equity of about Rs 440 crore since inception, and Rs 300 crore was infused in February 2022, aided by contribution from marquee global private equity investors. Consequently, overall networth increased to Rs 416 crore as on March 31, 2022, from Rs 124 crore, a year before. Gearing too was comfortable at 0.4 time, as against 0.6 time during the same period and is likely to remain under 3 times at a consolidated level over the medium term. Better cash accrual and regular fund-raising should shield the group from asset-side risks.

 

• Differentiated business model with focus on established corporates as anchor partners

Mintifi operates a differentiated business model, with greater focus on funding large corporates with an established track record in India. It partners with corporates and offers SCF   across to 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 87% of the portfolio as of March 2022, vis-à-vis 40% as of March 2020, and the share should lie in the range of 85-90% going forward.

 

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 410 crore as on March 31, 2022, from Rs 141 crore as on March 31, 2021. Out of Rs 410 crore, Rs 401 crore was on its own book with the remaining belonging to lender partners.

 

Furthermore, the group caters to a vast end-user base from multiple industries such as paints, garments, cables, kitchenware, education, lubricants 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.

 

Weakness:

• Maintaining asset quality metrics whilst sustaining profitability; a key monitorable

Mintifi commenced operations in 2017 and since then, assets under management have grown to Rs 410 crore as on March 31, 2022, a growth of 190% year-on-year (3-year CAGR of 113%) at the group level. Over the past two years, the business model has been modified, with the group focusing more on supply chain financing (SCF) as against term loans. Consequently, SCF formed 87% of the portfolio as on March 31, 2022, as against 30% as on March 31, 2020. Further, around 92% of total disbursements since March 2020, have been through the SCF segment.

 

In the past, most of the stress for the group, has come from ‘term loan’ product having high exposures in segments like hotels, restaurants, and payment aggregators. These segments have been adversely impacted due to pandemic. Consequently, the overall asset quality metrics had deteriorated in the past with adjusted 90+ dpd (including 12 months write-offs) increasing to 6.7% as on March 31, 2021 from 3.3% as on March 31, 2020. Even in restructured portfolio, bulk of the contribution is of “Term Loan” product and the aforementioned segments.

 

However, the resultant change in the focus towards SCF segment has supported the asset quality metrics as the given segment has performed well during the pandemic. The 90+ dpd and adjusted 90+ dpd (including last 12 months write-offs) for the SCF segment remained comfortable at 0.7% and 1.4% at, as on March 31, 2022, as against 1.8% and 2.3% in the previous fiscal.

 

Additionally, the group has also increased its focus on secured lending with around 23% of the AUM as on March 31, 2022, being partly secured either through bank guarantee (BG), cash collateral (CC) or first-loss default guarantee (FLDG) as compared to nil in March 2020.

 

Consequently, performance of the overall book remained comfortable with 90+ dpd and adjusted 90+ dpd of 1.4% and 3.1% as on March 31, 2022, as against 2.9% and 6.7% as on March 31, 2021. The asset quality metrics were also supported by comfortable collection efficiency numbers with efficiency ratio remaining in the range of 94%-100% during June 2021 to March 2022. Additionally, the overall restructured portfolio also remained low at 4.6% as on March 31, 2022. Nevertheless, sustenance of comfortable asset quality metrics will continue to remain a key monitorable.

 

The comfortable asset quality metrics and robust risk management resulted in an improvement in credit costs since the last fiscal, with the same dropping to 2.1% in fiscal 2022, from 4.3% in fiscal 2021, thereby supporting the profitability metrics.  the profitability metrics were further supported by the reduction in the operating expenses to 6.8% in fiscal 2022, from 9.3% in fiscal 2021, as the group scaled up its operations. The group has also been able to reduce their cost of funding which supported net interest margins (NIMs). 

 

As a result of controlled credit costs and operating expenses and improvement in the cost of borrowings, the group has reported sustained profits since September 2021 and has turned profitable on a full-year basis, with a marginal profit in fiscal 2022. The group report a profit after tax of Rs 0.3 crore and return on average managed assets (RoMA) of 0.1% in fiscal 2022, as against loss of Rs 5.5 crore and RoMA of -3.2% in the previous fiscal.

 

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. Therefore, asset quality remains vulnerable to sharp 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.

 

Furthermore, while the operating expenses have improved, they still remained high. Consequently, tight control over operating expenses as the group scales up, will also remain a key monitorable.

 

Nevertheless, CRISIL Ratings expects profitability to improve further, going forward. Any substantial impact on the earnings profile remains a key monitorable.

Liquidity: Adequate

Asset-liability profile is comfortable as on March 31, 2022, with positive mismatches across buckets up to 1 year. As a practice, the group plans to maintain cash and liquid investments (fixed deposits and liquid mutual funds) to cover the debt obligation of 2-3 months and expected disbursements at all points in time.

 

Mintifi has debt of Rs 61 crore falling due between April and September 2022, against cash and its equivalents of Rs  216 crore as on March 31, 2022, and an unutilised bank limit of Rs 10 crore as on date.

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 gross NPA level below 3.5% in the medium term
• Improvement in the earnings profile while increasing the scale of operations

 
Downward factors:

• Increase in steady state gearing of above 4 times or inability to bring in capital as per plan
• 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 52 branches (including satellite branches) throughout India headed by people having significant credit experience.

Key Financial Indicators

As on/for the period ending	Unit	Mar-22*	Mar-21
Total assets	Rs crore	644.6	211.7
Total assets under management (including partner book)	Rs crore	410.1	141.3
Total income	Rs crore	53.0	24.4
Profit after tax	Rs crore	0.3	-5.5
90+ dpd (including partner book)	%	1.4	2.9
Adjusted 90+ dpd (including last 12 months write-offs) (including partner book)	%	3.1	6.7
On-book gearing	Times	0.4	0.6
Return on assets	%	0.1	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	Non-convertible Debentures^	NA	NA	NA	21	Simple	CRISIL BBB/Stable
INE07KI07013	Non-convertible Debentures	28-Jul-21	12.70%	25-Jul-23	10	Simple	CRISIL BBB/Stable
INE07KI07021	Non-convertible Debentures	28-Jul-21	12.70%	25-Jul-23	10	Simple	CRISIL BBB/Stable
INE07KI07039	Non-convertible Debentures	30-Jul-21	13.50%	29-Jul-23	15	Simple	CRISIL BBB/Stable
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	52.57	NA	CRISIL BBB/Stable
NA	Term Loan	NA	NA	NA	10	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

^Not yet issued

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