Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB/Stable’ rating to the long term bank facilities of Moneyboxx Finance Ltd (MFL).

 

The rating reflects MFL’s comfortable capital position and extensive experience of the promoters in the financial services industry. However, these strengths are partially offset by small, albeit improving, scale of operations and average earnings profile.

 

MFL’s overall assets under management (AUM) was Rs 530 crore as on December 31, 2023 (Rs 338 crore as on March 31, 2023) against Rs 61.88 crore as on March 31, 2021 (second year of operations). AUM is expected to be over Rs 720 crore as on March 31, 2024. The present business model is structured to primarily cater to micro enterprises with the current loan portfolio comprising ~65% towards livestock, 8.5% towards kirana, 6.5% towards manufacturing, 17% towards trading and 2.7% towards services. The company follows a branch-based business model and currently has 100 branches in tier III and below cities across 8 states. The company initially started operations in Rajasthan, and then gradually expanded its footprint in others states such as Madhya Pradesh, Haryana, Punjab, Uttar Pradesh and Chhattisgarh. The company is now exploring other geographies to further scale its operations. Recently, it expanded to Bihar and Gujarat.

 

The company’s capitalisation is comfortable with a net worth of Rs 158.68 crore as on December 31, 2023. The promoters have demonstrated their ability to raise capital from investors by raising Rs 178.61 crore equity since inception including INR 4.92 crore in Q4 FY24.

 

MFL reported losses in its initial years of operations, but with increasing scale, the earnings profile has also improved, backed by improvement in operating expenses, although it continues to remain high. However, the earnings profile is supported by improving the cost of funds with the company raising incremental funds at 12.8% over the past two quarters and controlled credit costs.

 

Since inception, the company has been able to maintain asset quality with reported gross non-performing assets (GNPA) below 1% since March 2023. Asset quality is supported by the company’s adequate risk management and diligence framework. However, GNPAs increased to 1.5% as on December 31, 2023, from 0.62% as on March 31, 2023. The increase in delinquencies during the first nine months of fiscal 2024 was due to erratic distribution of rainfall in the states where MFL operates that led to negative impact on the income profile of borrowers. CRISIL Ratings believes asset quality metrics remain susceptible to sudden upticks during periods of stress given the inherent borrower profile and high exposure to livestock (65% of the portfolio) however, it is mitigated by the company’s focus on essential sectors and increasing focus on secured lending.

 

For the first nine months of fiscal 2024, the group reported profit after tax (PAT) of Rs 5.02 crore on total income of Rs 85.6 crore as compared to loss of Rs 6.8 crore on total income of Rs 50.4 crore for fiscal 2023. Improvement in the earnings profile is expected to continue going forward, and the company is expected to achieve a consistent quarterly PAT in the near term, which will be monitorable.

Analytical Approach

While arriving at the rating, CRISIL Ratings assessed the business and financial risk profiles of MFL on a standalone basis.

Key Rating Drivers & Detailed Description

Strengths:

• Comfortable capital position: Capitalisation metrics are comfortably supported by regular capital infusion. The company has raised total equity of Rs 178.61 crore since inception of which Rs 85.13 crore was raised in fiscal 2024. Co-founder directors have made an equity investment of Rs 13.46 crore in the last two fiscal years. Raising capital at regular intervals has resulted in net worth increasing to Rs 158.68 crore as on December 31, 2023, against Rs 76.4 crore as on March 31, 2023. Gearing also remained comfortable at 2.1 times as of December 2023 (3.0 times as on March 31, 2023). The company has indicated that steady state gearing will be maintained at 4 times in accordance with portfolio growth. In addition, MFL is also planning to raise another Rs 100 crore in fiscal 2025 which will further strengthen its capital position. Nevertheless, given its growth plans and the asset segment in which it operates, the ability of the company to keep on raising sufficient capital, while maintaining gearing at a comfortable level, will be a key rating sensitivity factor.

 

• Extensive experience of the promoters and management in the financial services industry: The leadership team at MFL is experienced and its expertise has not only allowed the company to establish a diligent risk management framework in-house, but also set up an efficient post disbursal follow-up process. The company was founded by Mr Mayur Modi and Mr Deepak Aggarwal, who have extensive experience in the financial services industry. They have more than two decades of experience in companies such as HSBC, JP Morgan, Bank of America, Deutsche Bank and KPMG. Other members of the leadership team have an average experience of over 20 years in their respective fields. The company, through its lending practices, is largely retail focused and has been enabling financing to new-to-credit customers, semi-urban areas and strives to provide sustainable livelihoods related to financing products for its customers.

 

The experience and understanding of the promoters have enabled the company to put in place comfortable risk management systems. MFL has adopted a branch-based model with most of its operations from origination to disbursements happening digitally. Furthermore, it has a proprietary credit risk model used to evaluate credit decisions. The company leverages its on-ground presence for loan monitoring.

 

Weaknesses:

• Moderate earnings profile constrained by improving, but elevated, operating expenses: With improving scale, the earnings profile has also improved backed by improvement in operating expenses, although it continues to remain high. The overall earnings profile of the company has been constrained due to high operational costs. The operational costs in proportion to average AUM remained high at 19.8% during fiscal 2022 but improved to 15.4% in fiscal 2023 and 14.1% for the first nine months of fiscal 2024 and the company expects it to be about 12.5% for fiscal 2024. The operational costs were largely attributed to the employee and branch set-up and expansion costs. However, the earnings profile was supported by improving costs of funds with MFL being able to raise incremental funds at 12.8% in fiscal 2024 with control over credit cost. Since its inception, the company has been able to maintain credit costs on account of healthy asset quality with GNPAs below 1.5%. Despite robust asset quality maintained so far, it remains susceptible to risks inherent in the unsecured segment. Furthermore, as most of the portfolio growth has come during the last 1-2 years, its ability to maintain credit cost with growth in the portfolio and thereby not impact profitability adversely, will remain monitorable.

 

For the first nine months of fiscal 2024, the company reported profit after tax (PAT) of Rs 5.02 crore as compared to full year loss of Rs 6.8 crore. Going forward, this trajectory of improvement in the earnings profile is expected to continue with operating cost expected to stabilise and improvement in cost of borrowing. However, the company’s ability to improve its earnings profile from the current level will remain a key monitorable.

 

• Small, albeit improving, scale of operations: AUM grew to Rs 530 crore as on December 31, 2023 (Rs 338 crore as on March 31, 2023) as against Rs 61.88 crore as on March 31, 2021. AUM is estimated to be over Rs 720 crore as on March 31, 2024. AUM is well-diversified across eight states with a focus on essential sectors. The current loan portfolio mix comprises ~65% towards livestock, 8.5% towards kirana, 6.5% towards manufacturing, 17% towards trading and 2.7% towards services. The company follows a branch-based business model and currently has 100 branches in tier III and below cities. The company initially started operations in Rajasthan, and then gradually expanded its footprint to other states, including Madhya Pradesh, Haryana, Punjab, Uttar Pradesh and Chhattisgarh. It is now exploring other geographies to further scale up operations. Recently, it expanded to Bihar and Gujarat. Apart from geographical diversification, MFL has started expanding its product portfolio. The company has started offering secured business loan against property (LAP) from fiscal 2023 and as of December 2023, its share of secured product is around 17% of total AUM which further increased to 23% as of March 31, 2024, and is targeting 35-40% by March 31, 2025. CRISIL Ratings expects the pace of growth to remain healthy over the medium term, with the company’s enhanced focus on geographical expansion. However, the ability to scale up operations, backed by healthy asset quality, remains a key monitorable.

Liquidity: Adequate

As on December 31, 2023, liquidity stood at around Rs 91 crore (cash and equivalent). The management’s policy is to maintain 2-3 months of liquidity to meet upcoming debt obligation. Asset-liability maturity profile of the company is comfortable with positive gaps across tenure buckets as on December 31, 2023. Furthermore, the company has also been collecting an estimated Rs 25-30 crore on a monthly basis which further enhances its liquidity position. Liquidity is adequate to meet debt obligation over the next three months.

Outlook: Stable

CRISIL Ratings believes that MFL will benefit from its experienced promoters and management and will maintain its comfortable capital position over the medium term. However, sustainable improvement in asset quality metrics and earning profile remains a key monitorable.

Rating Sensitivity factors

Upward factors:

• Sustained asset quality with NPAs remaining below 2%, while the company scales up its portfolio
• Stable earnings profile with return on managed assets (ROMA) of over 3% on steady-state basis
• Further improvement in the capital position through raising equity capital and gearing remaining below 4 times on steady state basis

 

Downward factors:

• Any adverse movement in asset quality with 90+ days past due (dpd), impacting the earnings profile
• Moderation in capitalisation metrics with adjusted gearing beyond 4 times

About the Company

MFL is a non-deposit taking, base layer non-banking financial company (NBFC-BL) registered with the Reserve Bank of India (RBI) and listed on the Bombay Stock Exchange. It is promoted by Moneyboxx Capital Pvt Ltd and provides small-ticket business loans to micro and small enterprises. MFL commenced commercial operations in February 2019. As on March 31, 2024, the company had 100 branches across eight states. All branches are present in tier III and below cities.

Any other information: Not Applicable