Detailed Rationale CRISIL Ratings has assigned its 'CRISIL A+/Stable' rating on Rs.150 crore non-convertible debentures of Payu Finance India Private Limited (PayU Finance). CRISIL Ratings has also reaffirmed its ratings on the company's bank facilities and commercial paper at 'CRISIL A+/Stable/CRISIL A1+'.
The ratings are centrally driven by the strong linkages with, high strategic importance to, and expectation of financial support from the ultimate parent, Prosus NV (Prosus; rated 'BBB-/Positive' by S&P Global). PayU Credit is the financial technology (fintech) vertical of Prosus. PayU Finance is the India non-banking finance company (NBFC) of the Group, held through PaySense Services India Private Limited (PaySense), which in turn is held by PaySense Pte. Ltd. Singapore, a subsidiary of PayU Credit B.V and ultimately held by Naspers Ltd (Naspers) through Prosus. The ratings also reflect PayU Finance's healthy capitalisation profile, comfortable liquidity, support to the resource profile, strong growth prospects amidst the strong linkages with the parent. These strengths are partially offset by the inherent vulnerability of asset quality in the unsecured segments and weak earnings profile, given the initial stage of operations.
PayU Finance started operations in February 2019. In December 2019, PayU Global Group, (through MIH Fintech Holdings BV and its step-down subsidiaries, including PayU Global BV) acquired PaySense. The initial plan of merger between PayU Finance and PaySense has been replaced by holding subsidiary structure given the operational constraints associated with merger. In line with this, on June 01, 2021, the company has become a fully owned subsidiary of PaySense, Nevertheless, given the interlinkages between the companies and the commonality of management, CRISIL Ratings continues to consolidate the business and financial risk profiles of PayU Finance and PaySense. Prosus is expected to continue to hold >75% stake in PaySense. PaySense has been in the business of origination, underwriting and management of loan assets since 2015 and has co-lending arrangements with NBFCs and Banks in India.
PayU Finance is of high strategic importance to PayU Credit B.V. as it plans to become the vehicle growing the credit business in India by leveraging on the PayU Payment's gateway data, low-cost acquisition channel in the form of BNPL and PaySense's social graph underwriting model. On the payments business side too, India contributes 48% of the business volumes of the Group. Furthermore, PayU Finance operations are closely integrated with the parent and global operations. PayU Finance's compliance, finance, treasury, business and risk management functions are aligned with the parent. PayU Finance has also received loans from large foreign banks on the basis of the global relationships of Prosus and PayU Global Group. PayU Credit B.V. is expected to operate the business of PayU Finance in a manner that would enable them to perform their obligations to all lenders and debt holders in a full and timely manner as evidenced by PayU Payments Private Limited (Payments arm of PayU in India) providing formal support to some of the loans raised in the initial phase of the business, thus clearly highlighting the importance of the lending business. Additionally, this is supported by current shareholding at Prosus level, which is expected to remain above 75%.
In addition, while the parent has consistently infused capital to support the growth and operations of PayU Finance, they have also committed for USD 135 million (about Rs 1,000 crore[1]), which is expected to be infused based on defined milestones over the medium term. As on 3rd Aug 2021, USD 49 million of this has been infused in PaySense Services of which about USD 40 million shall be infused in PayU Finance in the current financial year. The shared brand also enhances the expectation of need-based support from the parent. Any material disruption in PayU Finance business could have a significant impact on the reputation and franchise of the parent.
Consequently, the capital profile was comfortable, with a tangible net worth of Rs 393 crore as on March 31, 2021, with a gearing of 0.4 times. Gearing is likely to remain under 3 times over the medium term, backed by regular capital infusions from the parent.
At a consolidated level, assets under management (AUM) stood at Rs 479 crore as on March 31, 2021, of which Rs 245 crore is via the off-book portfolio of PaySense. At a standalone level, PayU Finance had an outstanding AUM of Rs 234 crore as on March 31 2021, of which personal loans constituted around 68% with the remaining being the LazyPay loans, a buy now pay later (BNPL) product. The combination of PayU Payment's gateway data, low-cost acquisition channel in the form of BNPL and PaySense's social graph underwriting model will help in fast scale-up of the business.
Within the personal loan portfolio, the collections efficiencies were impacted post the lockdown dropping to 49%[2] in June 2020 which has since then improved to 105%2 in October 2020 and remained at similar levels till March 2021. With the onset of second wave, the collections have been marginally impacted in April and May 2021, however, the same have improved since June 2021 with the reopening of the lockdowns. For the BNPL portfolio, the collection efficiency remained high at above 95%[3] between March and September 2020 and above 98%3 between October 2020 to March 2021. Consequently, at an overall portfolio level, collection efficiency improved to 100% in October 2020, after dropping to a low of 86% in July 2020 and has been in the range of 99-100% since.
Nevertheless, with degrowth in the portfolio, especially for PaySense (AUM at Rs 245 crores as on March 31, 2021, vs Rs 498 crores as on March 31, 2020), and the challenging macroeconomic environment, the asset quality metrics deteriorated to 10.44% as on March 31, 2021, from 2.26% as on March 31, 2020. However, the Group also has conservative provisioning and write-off policies, inclusive of write-off GNPA was 18.90% as on March 31, 2021 (4.98% as on March 31, 2020). The increase in GNPA is on account of degrowth in total book from Rs 645 crores as on March 31 2020 to Rs 478 Crs as on March 31, 2021. Further, minimal restructuring of 1.6% has been done in the off-book portfolio and no restructuring has been done in the on book portfolio. Excluding the off-book portfolio, the GNPA of the on-book portfolio was 4.14% and including write-off the GNPA was 11.08% as on March 31, 2021. Nevertheless, PayU Finance has put in place a strong risk management framework and practices that should support asset quality metrics
Given the initial stage of operations, the loan book lacks seasoning, and therefore ability to maintain asset quality metrics as the portfolio scales up will remain a key monitorable.
Earnings profile too is moderate owing to the initial stage of operations, marked by elevated operating expenses, primarily because of conservative provisioning policy. Consequently, the combined entity has reported losses of Rs 183 crore for fiscal 2021 against a loss of Rs 126 crore in fiscal 2020. For fiscal 2021, the operating expenses stood at 47% of AUM of which the major chunk was due to technological investments. The credit costs on the other hand have remained elevated at 11% of AUM (including the co-lending book) as the company adopts a conservative provisioning and write off policy. As per the policy, the entity write-offs the loans above 180+ DPD for personal loans and 90+ DPD for BNPL while maintaining a continued focus on recovery. Nevertheless, the average yield on the portfolio is 24-26%, which supports the earnings profile. Additionally, the entity has raised funds both on a standalone basis and driven by the linkages from the PayU Global Group. The management remains focused on raising cost-effective funding. The company is likely to continue reporting losses; profitability would kick in once the entity achieves economies of scale.
Liquidity profile has been strong. The company has a policy of maintaining around 2-3 months of outflows, both debt repayment and operating expenses, in the form of cash and cash equivalents, liquid investments and undrawn debt lines. Asset liability maturity profile too is comfortable (as on March 31, 2021), with cumulative positive gaps in all maturity buckets up to five years. As of March 31, 2021, the company had debt repayment and interest obligation of Rs 140 crore till September 30, 2021. Against the same, it had cash and equivalent[4] of Rs 256 crore and unutilized cash credit/working capital demand loan of 141 crore.
[1] Exchange rate: 1 USD =Rs 75 [2] Collection Efficiency = Total Collections including Overdues (excluding Prepayments) / Scheduled Billing for the month [3] Collection Efficiency = Total Collections including Overdues (excluding Prepayments) / Scheduled Billing and overdue billing for the month [4] Including investments in ICDs and CP.. |
Analytical Approach CRISIL Ratings has consolidated the business and financial risk profiles of PayU Finance and PaySense, due to interlinkage between these entities. Going forward, the entities shall focus on the growth of its own-book as well as co-lending. The ratings also centrally factor in expected financial support from the ultimate parent, Prosus NV (rated 'BBB-/Positive' by S&P Global) and the strategic importance of PayU Global Group /PayU Payments given the focus of the credit business to the growth of the Group and the interlinkages between the payments business and the lending arm.
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: * Strategic importance to, and expectation of strong support from, the ultimate parent, Prosus NV The rating is underpinned by the strong linkages with, high strategic importance to, and expectation of strong financial support from the ultimate parent, Prosus NV (Prosus; rated 'BBB-/Positive' by S&P Global). PayU Credit is the financial technology (fintech) vertical of Prosus. PayU Finance is the India non-banking finance company (NBFC) of the Group, held through PaySense, which in turn is held by Paysense Pte. Ltd. Singapore, a subsidiary of PayU Credit B.V and ultimately held by Naspers through Prosus.
PayU Finance is of high strategic importance to PayU Credit B.V. as it plans to become the vehicle growing the credit business in India by leveraging on PayU Payment's gateway data, low-cost acquisition channel in the form of BNPL and PaySense's social graph underwriting model. On the payments business side too, India contributes 48% of the business volumes of the Group.
Furthermore, PayU Finance operations are closely integrated with the parent and global operations. PayU Finance's compliance, finance, treasury, business and risk management functions are aligned with the parent.
In fact, PayU Finance has also received loans from large foreign banks on the basis of the global relationships of Prosus and PayU Global Group. PayU Global Group is expected to operate the business of PayU Finance in a manner that would enable them to perform their obligations to all lenders and debt holders in a full and timely manner as evidenced by PayU Payments providing formal support to some of the loans raised in the initial phase of the business, thus clearly highlighting the importance of the lending business. Additionally, this is supported by current shareholding at Prosus level, which is expected to remain above 75%.
While the parent has consistently infused capital to support the growth and operations of PayU Finance, it has also committed for USD 135 million (about Rs 1,000 crore1) which is expected to be infused based on defined milestones over the medium term. As on 3rd Aug 2021, USD 49 million of this has been infused in PaySense Services of which about USD 40 million shall be infused in PayU Finance in the current financial year. The shared brand also enhances the expectation of need-based support from the parent. Any material disruption in PayU Finance business could have a significant impact on the reputation and franchise of the parent.
CRISIL Ratings believes that PayU Finance will receive timely financial support from the parent, both on an ongoing basis and in the event of distress.
* Strong capitalisation base supported by regular capital infusions from the parent The capital profile was comfortable, with a tangible net worth of Rs 393 crore as on March 31, 2021, with a gearing of 0.4 times. PayU Finance received an initial capital of USD 65 million (Rs 488 crore) in fiscal 2020. Additionally, the parent has earmarked USD 135 million (about Rs 1,000 crore1) for capital infusion going forward to be infused at defined milestones over the medium term. As on 3rd Aug 2021, USD 49 million of this has been infused in PaySense Services of which about USD 40 million shall be infused in PayU Finance in the current financial year. Gearing should remain below 3 times over the medium term, with the expected capital infusion.
* Easily scalable business model PayU Payments’ business in India is amongst the largest and has around 100 million consumer base. This will help access to a large base of customers and thereby reduce the acquisition cost. Further, PaySense, since 2015, has been providing services for loan origination, servicing, and collections to its co-lenders. The combination of PayU Payment's gateway data, low-cost acquisition channel in the form of BNPL and PaySense's social graph underwriting model will help in fast scale-up of the business over the medium term, with the company being a purely digital lender.
At a -combined level, assets under management (AUM) stood at Rs 479 crore as on March 31, 2021, of which Rs 245 crore is via the off-book portfolio of PaySense. At a standalone level, PayU Finance had an outstanding AUM of Rs 234 crore as on March 31, 2021, of which personal loans constituted around 68% with the remaining being the LazyPay loans, a buy now pay later (BNPL) product.
Weakness: * Inherent vulnerability of asset quality Within the personal loan’s portfolio, the collections efficiencies were impacted post the lockdown dropping to 49%[5] in June 2020 which has since then improved to 105%5 in October 2020 and remained at similar levels till March 2021. With the onset of second wave, the collections have been marginally impacted in April and May 2021, however, the same have improved since June 2021 with the reopening of the lockdowns. For the BNPL portfolio, the collection efficiency remained high at above 95%[6] between March and September 2020 and above 98%6- between October 2020 to March 2021. Consequently, at an overall portfolio level, collection efficiency improved to 100% in October 2020, after dropping to a low of 86% in July 2020 and has been in the range of 99-100% since.
Nevertheless, with degrowth in the portfolio, especially for PaySense (AUM at Rs 245 crores as on March 31, 2021, vs Rs 498 crores as on March 31, 2020), and the challenging macroeconomic environment, the asset quality metrics deteriorated to 10.44% as on March 31, 2021, from 2.26% as on March 31, 2020. However, the Group also has conservative provisioning and write-off policies, inclusive of write-off GNPA was 18.90% as on March 31, 2021 (4.98% as on March 31, 2020). The increase in GNPA is on account of degrowth in total book from Rs 645 crores as on March 31 2020 to Rs 478 Crs as on March 31, 2021. Further, minimal restructuring of 1.6% has been done in the off-book portfolio and no restructuring has been done in the on book portfolio. Excluding the off-book portfolio, the GNPA of the on-book portfolio was 4.14% and including write-off the GNPA was 11.08% as on March 31, 2021. Nevertheless, PayU Finance has put in place a strong risk management framework and practices that should support asset quality metrics
Given the initial stage of operations, the loan book lacks seasoning, and therefore ability to maintain asset quality metrics as the portfolio scales up will remain a key monitorable.
* Average earnings profile constrained by higher operating expenses and credit costs Earnings profile too is moderate owing to the initial stage of operations, marked by elevated operating expenses, primarily because of conservative provisioning policy. Consequently, the combined entity has reported losses of Rs 183 crore for fiscal 2021 against a loss of Rs 126 crore in fiscal 2020.
For fiscal 2021, the operating expenses stood at 47% of AUM of which the major chunk was due to technological investments. The credit costs on the other hand have remained elevated at 11% of AUM (including the co-lending book) as the company adopts a conservative provisioning and write off policy. As per the policy, the entity write-offs the loans above 180+ DPD for personal loans and 90+ DPD for BNPL while maintaining a continued focus on recovery.
Nevertheless, the average yield on the portfolio is 24-26%, which supports the earnings profile. Additionally, the entity has raised funds both on a standalone basis and driven by the linkages from the PayU Global Group. The management remains focused on raising cost-effective funding.
[5] Collection Efficiency = Total Collections including Overdues (excluding Prepayments) / Scheduled Billing for the month [6] Collection Efficiency = Total Collections including Overdues (excluding Prepayments) / Scheduled Billing and overdue billing for the month. |
Liquidity: Strong Liquidity profile has been strong. The company has a policy of maintaining around 2-3 months of outflows, both: debt repayments and operating expenses, in the form of cash and cash equivalents, liquid investments and undrawn debt line. Asset liability management profile too is comfortable (as on March 31, 2021) with cumulative positive gaps in all maturity buckets up to five years. As of March 31, 2021, the company had debt repayment and interest obligation of Rs 140 crore till September 30, 2021. Against the same, it had cash and equivalent[7] of Rs 256 crore and unutilised cash credit/working capital demand loan of 141 crore.
[7] Including investments in ICDs and CP.. |
Outlook: Stable CRISIL Ratings believes PayU Finance will remain strategically important to and will continue to receive financial, managerial, and operational support from PayU Global Group. Further, the company would continue to maintain a strong capitalisation and liquidity profile. |
Rating Sensitivity Factors Upward factors
Downward factors
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About PayU Finance PayU Finance started operations in February 2019. The company initially offers LazyPay, a BNPL product that is interest-free and valid for 15 days. Subsequently, PayU Finance offers personal loans to borrowers with a good repayment track record. PayU Finance currently has also been offering personal loans to borrowers using PaySense as a co-lender. However, going ahead, the origination shall be done in PayU Finance with PaySense’s as technology and sourcing partner -. Further, PaySense on standalone basis is expected to continue offering loan management services to its co-lenders. At a combined level, asset under management was at Rs 479 crore (including co-lending book) as on March 31, 2021, of which, 84% was for personal loans, and 16% was LazyPay loans. |
About Naspers and Prosus - The ultimate parent Naspers, headquartered in Cape Town, South Africa, was founded in 1915. In recent years, the Group has been transitioning from a media-based company to an investment holding company with a focus on technology, and internet-related investments have accelerated. Naspers operates in the consumer internet industry worldwide. It holds investments in classifieds, food delivery, payments and fintech, education, health, and eCommerce, as well as ventures, and social and Internet platforms. The company also prints, publishes and distributes newspapers, magazines, and books through digital platforms.
In September 2019, Johannesburg Stock Exchange (JSE)-listed Naspers, Prosus' parent company, listed a 26% stake in Prosus on the Amsterdam Stock Exchange, with a secondary listing on the JSE and A2X exchanges in South Africa. Prosus is the ultimate holding company of the Group's international (non-South African) internet investments representing around 99% of the total group portfolio value; South African investments are held directly by Naspers.
Prosus has a relatively liquid portfolio compared with peers, with approximately 90% of its portfolio value listed, based on valuations at June 30, 2021. Much of the exposure to listed equity is its Tencent stake, which was valued at about USD 200 billion at that date. Prosus' three other listed assets Mail.ru, Trip.com, and Delivery Hero had a combined market value of over $10 billion as on June 30, 2021. The value of the unlisted investment portfolio is estimated at USD 28 billion, relatively well spread across multiple assets. Furthermore, a key credit strength is Prosus' solid liquidity position, characterised by management's commitment to preserving ample liquidity buffers, with USD 3.5 billion in cash and equivalents as on March 31, 2021, a USD 2.5 billion committed revolving credit facility and no debt maturities until July 2025. Furthermore, Prosus received USD 14.6 billion in proceeds from a 2% trim of its stake in Tencent in April 2021 and USD 570 million from Tencent as dividend in June 2021. As of March 31, 2021, Prosus had USD 7.8 billion of outstanding debt. |
Key Financial Indicators – PayU Finance (standalone)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
&WCDL Limit of Rs 5 crore is a sublimit of CC Limit ^WCDL Limit of Rs 20 crore is a sublimit of CC Limit %WCDL limit of Rs 50 Crore is sublimit of OD limit $OD limit of Rs 10 crore is a sublimit of WCDL **Yet to be issued |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit&^ | Axis Bank Limited | 20 | CRISIL A+/Stable |
| Cash Credit&^ | HDFC Bank Limited | 5 | CRISIL A+/Stable |
| Overdraft Facility% | Deutsche Bank | 21.5 | CRISIL A+/Stable |
| Overdraft Facility% | ICICI Bank Limited | 50 | CRISIL A+/Stable |
| Proposed Long Term Bank Loan Facility | Not Applicable | 200 | CRISIL A+/Stable |
| Proposed Long Term Bank Loan Facility | Not Applicable | 43.5 | CRISIL A+/Stable |
| Short Term Loan | JP Morgan Chase Bank N.A. | 25 | CRISIL A1+ |
| Term Loan | Hero FinCorp Limited | 20 | CRISIL A+/Stable |
| Term Loan | Kisetsu Saison Finance India Private Limited | 25 | CRISIL A+/Stable |
| Working Capital Demand Loan$ | HDFC Bank Limited | 20 | CRISIL A+/Stable |
| Working Capital Demand Loan$ | JP Morgan Chase Bank N.A. | 10 | CRISIL A+/Stable |
| Working Capital Demand Loan$ | Kotak Mahindra Bank Limited | 50 | CRISIL A+/Stable |
| This Annexure has been updated on 26-Sep-2021 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity | |||
Criteria Details
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