Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank loan facilities and commercial paper of NJ Capital Pvt Ltd (NJ Capital; a part of the NJ group) 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 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 and adequate capitalisation to support its medium-term growth plans. These strengths are partially offset by the modest scale of operations, limited track record of the group in the lending business and moderate profitability.

 

Capital position at the group level is comfortable, with consolidated networth of Rs 1,429 crore and gearing of 0.16 time, as on March 31, 2024 (Rs 1,136 crore and 0.08 time, respectively, as on March 31, 2023). Stable gross accretion of over Rs 960 crore (cumulatively) during the past three fiscals have enabled the company to build its current capital position. NJ Capital, being the only non-banking finance company (NBFC) within the NJ group, will benefit from regular capital infused by the group and its promoters. Till fiscal 2024, NJ India Invest infused around Rs 145 crore via equity. The promoters are expected to infuse additional equity of Rs 100-150 crore in tranches over the medium term.

 

As on September 30, 2024, the assets under management (AUM) of NJ Capital improved to Rs 555 crore (from Rs 368 crore as on March 31, 2024). Although the scale of operations is increasing, the company has a limited track record. While the group started groundwork for its NBFC operations in fiscal 2019, it commenced lending only during fiscal 2020, backed by a cautious approach. Therefore, the ability to grow its portfolio while maintaining asset quality will be monitorable

Analytical Approach

CRISIL Ratings has assessed the standalone business and financial risk profiles of NJ Capital. Further, CRISIL Ratings factors in the expectation of strong support to NJ Capital from the NJ group, whose flagship company is NJ India Invest. NJ Capital will remain an integral part of the NJ group, with operational and business synergies, given the common promoters and shared brand

 

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:

• Expected financial, operational and management support from its promoters and NJ group: 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 lends product diversity to the group’s clients. Given full ownership, shared name, common branding and corporate identity, the promoters and the group have a strong moral obligation to support NJ Capital. One founder-promoter of the group is also on the board of NJ Capital. Furthermore, the promoters are expected to provide support both on an ongoing basis and in case of distress. They intend to infuse capital into NJ Capital to support growth. Till March 2024, NJ India Invest had infused equity worth around Rs 145 crore in NJ Capital. The promoters are expected to infuse additional equity of Rs 100-150 crore in tranches over the medium term. The promoters and the group have also articulated their stance to ensure financial and liquidity support to NJ Capital, in case of any exigency, to meet debt obligation in a timely manner.

 

• Established market position in the mutual fund distribution space to benefit NBFC operations.: The promoters, Mr Neeraj Choksi and Mr Jignesh Desai, have spent three decades in the mutual fund distribution business. Their longstanding presence and strong understanding of business dynamics have enabled the company to be among the top three mutual fund distributors with assets under advice of Rs 2,45,452 crore as on September 30, 2024 (Rs 1,90,696 crore as on March 31, 2024). The company has continued to maintain its position among the top three mutual fund distributors over the past five years and has also received the highest gross commission, despite direct competition from banks. The company caters to retail investors and currently has a wide distribution network of more than 43,500 wealth partners (authorised distribution partners) across 185+ branches in 23 states across India. As on September 30, 2024, they catered to more than 36 lakh investor accounts.

 

• Adequate capitalisation with a conservative gearing policy: At a standalone level, networth stood at Rs 168 crore (as per provisional numbers) and gearing at 2.3 times as on September 30, 2024 (Rs 158 crore and 1.4 times, respectively, as on March 31, 2024). The company is in the initial phase of business and may get need-based capital infusion from the promoters and the NJ group. Furthermore, NJ Group had consolidated networth of Rs 1,429 crore with negligible debt as on March 31, 2024 (Rs 1,136 crore with negligible debt as on March 31, 2023). The group relies on internal cash accrual with negligible debt on its books. Furthermore, it operates in commission-based business wherein the capital requirement is relatively lower; the capital will be primarily required for the NBFC arm. NJ Capital is expected to maintain gearing below 3 times over the medium term.

 

Weaknesses:

• Improving-yet-moderate scale of operations with limited track record in the lending business: Being in the initial stage of operations, NJ Capital has a small portfolio with AUM of Rs 555 crore as on September 30, 2024 (Rs 368 crore as on March 31, 2024), up from Rs 191 crore as on March 31, 2023. It mainly caters to customers of the NJ group. As a part of the diversification strategy, the group commenced the lending business in fiscal 2020. However, it has formed a team by acquiring professionals from the industry with over two decades of experience. Furthermore, the risk in loan against securities book is managed by maintaining an adequate security cover. Ability to further scale up operations, backed by healthy asset quality, remains monitorable.

 

• Moderate profitability: For the first half of fiscal 2025, the company reported a profit after tax (PAT) of Rs 9.3 crore on a provisional basis. During fiscal 2024, it reported profit after tax of ~Rs 8.2 crore (Rs 3.8 crore in fiscal 2023). Although there has been improvement in the reported profitability, its sustenance will remain monitorable over the medium term. Furthermore, the three-year average return on equity has improved to around 8% as on September 30, 2024.

 

Profitability is expected to improve over the medium term with the ramp up in operations. In terms of financing cost, the company has been able to borrow at competitive rate during fiscal 2024 and first half of fiscal 2025. Additionally, over its four years of operations, the company has maintained nil credit losses. It has maintained a conservative stance in systems and the process for invocation of securities that it holds in case of non-payment or default. All these factors have helped to report positive accretion so far. Nevertheless, the ability to sustain profitability, along with growth in portfolio and managing credit cost, will remain monitorable

Liquidity: Adequate

On a standalone basis, NJ Capital had liquid investments and unencumbered cash and bank balance of around Rs 64 lakhs and unutilised funding limit of nearly Rs 74 crore, as on September 30, 2024. At the group level, liquidity in the form of unencumbered cash/bank balance, fixed deposit and investments in mutual funds aggregated to over Rs 1,100 crore, as on September 30, 2024. Furthermore, NJ India Invest maintains 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. In addition to this, the latest available asset liability management shows positive cumulative gaps in the up to six months bucket as on March 31, 2024. 

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:

• Revision in CRISIL Ratings’ credit view on the NJ group
• Improvement in scale of operations while maintaining healthier asset quality
• Sustenance in earnings profile with return on managed assets greater than 2.5% maintained on steady state basis

 

Downward factors:

• Any change in stance of promoters in providing support to NJ Capital or downward revision of CRISIL Ratings’ credit view on the NJ Group
• Deterioration in the market position of NJ India Invest or reduction in profitability, thereby impacting the credit risk profile of the NJ group
• Weakening in the earnings profile of NJ Capital
• Dilution in risk management practices exerting pressure on asset quality, with 90+days past due in lending book exceeding 5%

About the Group

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 also includes distribution of capital market products – direct equity and exchange traded funds and fixed-income products, namely non-convertible debentures, company deposits etc. Over the last few years, the NJ group has expanded into other businesses, and it also operates in businesses such as real estate, insurance broking, training and development, technology, portfolio management, NBFC, payment aggregation, organic and non-organic food, and health-related social activities. The promoters, Mr Neeraj Choksi and Mr Jignesh Desai, have more than 28 years of experience in the mutual fund distribution business. As on March 31, 2024, the group has more than 43,500 distribution partners with presence across 22 states of India.

About the Company

The company is the NBFC arm of the NJ group, which caters mainly to 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 555 crore as on September 30, 2024. Gross non-performing assets have been nil since inception.

Key Financial Indicators

As on/for the year ended March 31	Unit	Sep 24^	FY24	FY23	FY22	FY21
Total assets	Rs crore	572	395	200	100	42
Total income	Rs crore	34	39	22	9.2	3
PAT	Rs crore	9.3	8.2	3.8	0.96	0.13
Return on assets	%	3.8%*	2.8%	2.5%	1.3%	0.5%
Gearing	Times	2.3	1.4	1.0	0.9	0.6

^provisional financials

*annualized

Any other information: Not Applicable