| NJ Capital Private Limited | ||||||
| 'CRISIL A1+' assigned to Commercial Paper; rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its 'CRISIL A1+' rating to the commercial paper of NJ Capital Private Limited (NJ Capital;A part of the NJ group). Also, CRISIL Ratings has reaffirmed its ratings on the bank facilities of NJ Capital at 'CRISIL A+/Stable/CRISIL A1+'
The ratings continue to reflect the strong financial and managerial support from the NJ group, whose flagship company is NJ India Invest Pvt Ltd (NJ India Invest). The ratings also factor in the benefits that NJ Capital is expected to receive owing to the well-established market position of the NJ group in the mutual fund distribution business, adequate capitalisation to support medium-term growth plans of NJ Capital and healthy risk management policies. These strengths are partially offset by improving-though-small scale of operations with limited track record in the lending business and modest profitability.
CRISIL Ratings has been monitoring proposed change in the corporate and shareholding structure of NJ Capital, which is currently a wholly owned subsidiary of NJ India Invest Private Limited (flagship company of NJ group). NJ India Invest will transfer its stake in NJ Capital to NJ Financial Services Pvt Ltd (NJ Financial Services; holding company, directly held by promoters of NJ India Invest). The mutual fund distribution business will remain in NJ India Invest, while the lending business will remain with NJ Capital but housed under a separate holding company, NJ Financial Services. Both NJ India Invest and NJ Financial Services will be individually held by the promoters, Mr. Neeraj Choksi and Mr. Jignesh Desai. This reorganisation is pursuant to compliance with regulatory guidelines from SEBI. The transaction is subject to receipt of regulatory approval.
CRISIL Ratings also takes into account the support received by NJ Capital from its promoters and the NJ group. The credit risk profile of NJ Capital will continue to benefit from the strong operational and financial synergies with the NJ group and expectation of timely, need-based financial support.
NJ India Invest is among the largest mutual fund distributors in India, with average assets under advice (AUA) of Rs 1,59,183 crore as on September 30, 2023 (against Rs 1,26,771 crore a year ago). The company has remained among the top three mutual fund distributors over the past five years (despite facing direct intense competition from banks in this space). Furthermore, the company has achieved top position in terms of gross commissions received during the past five years. The company primarily caters to retail investors who are looking to invest in mutual funds. It has created a huge network of ~39,500 distribution partners with presence in 19 states of India. The company also has prime focus towards Tier II and below cities/locations through which it can tap a large market. As on October 31, 2023, it catered to more than 28.42 lakh investor accounts. Believing that the vast untapped potential in the lending space presents a great opportunity, the NJ group set up its non-banking financial company (NBFC), NJ Capital, which started its operations by providing loans against mutual funds. This strong distribution set-up of NJ India Invest provides ready market for NJ Capital to leverage and offer financing solutions.
The capital position at the parent level has remained comfortable, with consolidated networth of Rs 1,136 crore and negligible gearing as on March 31, 2023 (against networth of Rs 873 crore and negligible gearing a year ago). Stable gross accretions of over Rs 870 crore (cumulatively) during the past five years has enabled the company to build its current capital position. NJ Capital, being the only NBFC arm within the NJ group, will benefit from regular capital infusion from the group and its promoters to support growth plans. Till fiscal 2023, NJ India Invest infused around Rs 90 crore of equity. Post reorganisation, the promoters are expected to infuse additional equity of around Rs 150 crore in tranches.
As on March 31, 2023, assets under management (AUM) of NJ Capital improved to Rs 191 crore (from Rs 97 crore a year ago) and stood at Rs 254 crore on October 31, 2023. Although NJ Capital has shown improvement in its operations, it has limited track record of operations. While the group started laying the groundwork for its NBFC operations in fiscal 2019, they commenced lending only during fiscal 2020 and has maintained a cautious approach to growth. Therefore, ability of the company to grow its portfolio while maintaining asset quality will be a key monitorable.
In terms of asset quality, NJ Capital has reported nil gross non-performing assets (GNPAs) as on September 30, 2023. Furthermore, there has been no credit loss reported in the lending business since inception. The company has maintained its conservative stance in systems and the process for invocation of securities held by it in case of non-payment or default. |
Analytical Approach CRISIL Ratings has assessed the credit risk profile (business and financial risk profiles) of NJ Capital. Further, CRISIL Ratings now factors in the expectation of strong support from the NJ group, whose flagship company is NJ India Invest. NJ Capital will remain an integral part of the NJ group due to operational and business synergies given their common promoters and shared brand. |
Key Rating Drivers & Detailed Description Strengths:
NJ Capital is the only lending arm of the NJ group. As part of its long-term strategy, the group has forayed into the lending business by offering loans against mutual funds to its vast captive customer base. NJ Capital provides product diversity to the clientele of the group. Given full ownership, shared name, common branding and corporate identity, the promoters and the NJ group have a strong moral obligation to support NJ Capital. One founder-promoter of the group is also on the board of NJ Capital. Further, support from the promoters is expected on an ongoing basis as well as during distress. Also, the promoters intend to infuse capital into NJ Capital to support growth. Till March 2023, NJ India Invest had infused equity worth around Rs 90 crore. Post reorganisation, the promoters are expected to infuse additional equity of around Rs 150 crore in tranches. The promoters and the NJ group have also articulated their stance to ensure financial and liquidity support to NJ Capital, in case of any exigency, to help meet its repayment obligations in a timely manner.
The NJ group is promoted by Mr Neeraj Choksi and Mr Jignesh Desai with over 28 years of experience in the mutual fund distribution business. Their experience and understanding of the business have enabled the company to be among the top three mutual fund distributors with AUA of Rs 1,59,183 crore as on September 30, 2023 (Rs 1,26,771 crore a year ago). Further, its wide distribution network has enabled steady growth of the business. NJ Group has over 39,500 NJ Wealth Partners (authorised distribution partners), spread across 95 branches in 19 states of India. As on March 31, 2023, they catered to more than 22.40 lakh investor accounts. This strong reach and huge investor base are expected to benefit NJ Capital; the group is offering financing services to Group customers. This provides a huge opportunity and ready customer base for NJ Capital to leverage and build its portfolio. Additionally, NJ Capital will be able to leverage on current wide distribution network of the parent without investing heavily on the same. Therefore, NJ Capital will benefit from the long track record of its promoters and wide distribution network of the group to scale up its business.
At a standalone level, networth of NJ Capital stood at Rs 112 crore and gearing at 1.1 times as on September 30, 2023. NJ Capital is in the initial phase of business and may get need-based capital infusion from the promoters and the NJ group. Further, NJ India Invest had consolidated networth of Rs 1,136 crore with negligible debt as on March 31, 2023. The group primarily relies on internal cash accrual for its funding requirement and has negligible debt on its book. Furthermore, the group is mainly present in commission-based business wherein the capital requirement is relatively lower; the capital will be primarily required for the NBFC arm. Further, the management has indicated that they will maintain gearing below 2.5 times at NJ Capital in the near term.
Weaknesses:
Being in the initial stage of operations, NJ Capital has a small portfolio with AUM of Rs 235 crore as on September 30, 2023, an improvement from Rs 140 crore a year ago. It mainly caters to the customers of the NJ group. The group started laying the groundwork for its NBFC operations in 2019 as a part of the diversification strategy. However, actual lending commenced in fiscal 2020. The group has limited experience in lending operations. However, it developed a team by acquiring professionals from the industry and most of the team members have more than two decades of experience. Further, the risk in loan against securities book is managed by maintaining adequate security cover. Ability to scale up operations, backed by healthy asset quality remains a key rating monitorable.
Since NJ Capital is in the early stage of operations, profitability is modest. However, it is expected to stabilise over the medium term. During fiscal 2023, the company reported profit after tax (PAT) of Rs 3.8 crore (Rs 0.92 crore in fiscal 2022). For the first half of fiscal 2024, NJ Capital has shown improvement in profitability and reported a profit before tax of Rs 4.7 crore on a provisional basis. Profitability is expected to improve further over the medium term, with the scaling up of operations. In terms of financing costs, while there has been limited debt, the company has been able to borrow at competitive rate of 8.5-9.5% during fiscal 2023 and in first half of fiscal 2024. Additionally, during three years of operations, the company has managed to report nil credit losses. Both these factors helped the company to report positive accretion so far. Nevertheless, the ability of the company to improve its profitability with growth in its portfolio and managing credit costs will remain a key monitorable. |
Liquidity: Adequate On a standalone basis, NJ Capital has adequate liquidity with asset and liability management showing positive cumulative gaps in the up to six months bucket as on September 30, 2023. Liquidity for NJ Capital stood at around Rs 48 lakh as on September 30, 2023, in the form of cash and bank balance. In addition to this, unutilized funding limits stood at around Rs 27.75 crore as on September 30, 2023.At the NJ group level, liquidity in the form of cash/bank balance, fixed deposit and investments in mutual funds aggregated to Rs 887 crore as on September 30, 2023. Furthermore, NJ India Invest has a policy of maintaining liquidity equivalent to one year of its overall budgeted expenditure at the group level. The group is likely to maintain free liquidity of at least Rs 300 crore on a steady-state basis |
Outlook: Stable NJ Capital will continue to benefit from the strong financial, managerial and operational support received from the NJ group. |
Rating Sensitivity factors Upward factors
Downward factors
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About the NJ group Incorporated in 1994, the NJ group provides a wide array of financial services such as mutual fund distribution, portfolio management services, insurance distribution and loans against shares. The product profile of the group also includes distribution of capital market products – direct equity and exchange traded funds and fixed-income products namely non-convertible debentures, company deposit etc. Over the last few years, the NJ group has expanded into other businesses and today it also has presence in businesses of real estate, insurance broking, training and development and technology, portfolio management, NBFC, payment aggregator, organic and non-organic food and health-related social activities. The promoters of the company, Mr Neeraj Choksi and Mr Jignesh Desai, have more than 28 years of experience in the mutual fund distribution business. As on October 31, 2023, the group has more than 39,500 distribution partners with presence across 19 states of India.
About NJ Capital The company is the NBFC arm of the NJ group, which caters mainly to the clients of NJ India Invest by providing loans against mutual funds. The company was incorporated in 2009 and received Certificate of Registration as an NBFC from the Reserve Bank of India in February 2019. It had a loan book of Rs 254 crore as on October 31, 2023. The company has reported nil GNPAs for the past three years |
Key Financial Indicators (standalone)
*ROA – on an annualised basis; ^provisional financials |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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