| Payu Finance India Private Limited | ||||
| Rated amount enhanced for Bank Debt and Commercial Paper | ||||
| 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 reaffirmed its 'CRISIL A+/Stable/CRISIL A1+' ratings on the enhanced bank facilities, existing debt instruments and commercial paper of Payu Finance India Private Limited (PayU Finance).
The ratings are centrally driven by the strong linkages with, high strategic importance to, and expectation of financial support from the ultimate parent, Prosus N.V. (Prosus; rated 'BBB/Stable' by S&P Global). PayU Credit is the financial technology (fintech) vertical of Prosus. PayU Finance is the Indian non-banking finance company (NBFC) 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 and 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.
CRISIL Ratings also notes the recent Digital Lending guidelines issued by Reserve Bank of India. The PayU Credit group has already taken certain actions to comply with the regulations. Further, capitalisation profile has been strengthened with the parent infusing Rs 276 crores in fiscal 2022 and Rs 500 crores in July 2022 which provides an additional layer of cushion against any asset side risk. CRISIL Ratings will continue to monitor any further developments in this regard and any material implication on the business profile of the group remains a key monitorable. |
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/Stable' 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 PayU Global 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:
The rating is underpinned by the strong linkages with, high strategic importance to, and expectation of strong financial support from the ultimate parent, Prosus N.V. (Prosus; rated 'BBB/Stable' 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 56% of the business volumes of the PayU Global 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 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, it had also committed for USD 135 million (about Rs 1,000 crore1) for the credit business which has been infused based on defined milestones over fiscal 2022 and fiscal 2023. In fiscal 2022, USD 59 million of this was infused in PaySense Services of which about USD 37 million was infused in PayU Finance. Furthermore, in July 2022, PaySense Pte. Ltd. raised capital of USD 104.1 million, out of which USD 62.5 million was down-streamed to PayU Finance. 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.
The capital profile was comfortable, with a consolidated net worth of Rs 536 crore and a gearing of 1.8x as on June 30, 2022. PayU Finance received an initial capital of USD 65 million (Rs 488 crore) in fiscal 2020. Additionally, the parent had earmarked USD 135 million (about Rs 1,000 crore1) for capital infusion in credit business which has been infused at defined milestones over fiscal 2022 and fiscal 2023. In fiscal 2022, USD 59 million of this was infused in PaySense Services of which about USD 37 million was infused in PayU Finance. Furthermore, in July 2022, Paysense Pte. Ltd. raised capital of USD 104.1 million (~Rs 830 crore), out of which USD 62.5 million (~Rs 500 crore) was down-streamed to PayU Finance. Post equity infusion in July 2022, the consolidated net worth has increased to Rs 1195 crore and the gearing ratio improved to 0.6x. With the recent capital infusions to support AUM growth, the gearing is likely to remain below 3 times over the medium term.
PayU’s payment business is amongst the leading players in India serving merchants across sizes and verticals for their digital payments needs. 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. Further, the company has entered into partnerships with application programming interface (API) lenders such as Kreditbee and started sourcing customers for personal loans.
CRISIL Ratings also notes the recent Digital Lending guidelines issued by Reserve Bank of India. The PayU Credit group has taken several steps to comply with the regulations. Further, capitalisation profile has been strengthened with the parent infusing Rs 276 crores in fiscal 2022 and Rs 500 crores in July 2022 which provides an additional layer of cushion against any asset side risk. CRISIL Ratings will continue to monitor any further developments in this regard and any material implication on the business profile of the group remains a key monitorable.
At a combined level, assets under management (AUM) stood at Rs 1,804 crore as on June 30, 2022, of which Rs 378 crore is via the off-book portfolio of PaySense. At a standalone level, PayU Finance had an outstanding AUM of Rs 1,365 crore as on June 30, 2022, of which personal loans constituted around 61% with the remaining being the LazyPay loans, a buy now pay later (BNPL) product. However, post the recent digital lending regulations personal loans is expected to drive growth for the group.
Weakness:
Within the personal loan’s portfolio for on book, the collections efficiencies[1] were impacted during the first wave of Covid-19 post which it improved to above 100% since October 2020 and have remained above 100% since. For the BNPL portfolio, the collection efficiency[2] remained high at above 95% between March and September 2020 and above 97% between October 2020 to June 2022. Consequently, at an overall portfolio level, collection efficiency[3] after dropping to 86% in July 2020 has improved and was in the range of 97-100% during October 2020 to June 2022.
Consequently, the asset quality metrics have improved in fiscal 2022 with consolidated GNPA at 1.1% as on March 31, 2022 from 10.4% as on March 31, 2021. Even including write offs, the GNPA on a standalone basis have improved to 3.7% as on March 31, 2022 from 11.1% as on March 31, 2021. In June too asset quality remained comfortable with GNPA (standalone) at 1.4% and inclusive of write off at 2.1%. Further, there has been limited restructuring, which has been done in the off-book portfolio and no restructuring has been done in the on-book portfolio. PayU Finance has put in place a strong risk management framework and practices that should support asset quality metrics.
However, 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 nascent stage of operations, marked by elevated operating expenses and credit costs because of conservative provisioning policy and loan accounts written-off. Consequently, the company reported combined loss of Rs 149 crore in fiscal 2022 and Rs 81 crore for the quarter ended June 30, 2022.
The operating expenses stood at about 44% of the average AUM for fiscal 2022 (31% of closing AUM) as compared to 39% for fiscal 2021 (46% of closing AUM), of which the employee related expenses accounted for significant portion. The credit costs too have remained elevated at 5% of the average AUM (4% of closing AUM) (net-off recoveries and including the co-lending book) in fiscal 2022 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.
An average yield on the portfolio is 22-23% coupled with the ability to raise funds at competitive rates driven by the linkages from the PayU Global Group, support the overall earnings profile. Nevertheless, rationalisation of operating expenses whilst maintaining credit costs under control remains a key monitorable. [1] Collection Efficiency = Total Collections including Overdues (excluding Prepayments) / Scheduled Billing for the month [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 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 June 30, 2022) with cumulative positive gaps in all maturity buckets up to five years. As of July 31, 2022, the company had cash and cash equivalents of Rs 136 crore and unutilized working capital lines of Rs 323 crore as on July 31, 2022, as against next 3 months’ debt repayments of Rs 258 crore, translating to a 3 month debt cover of 1.78x. In addition, investment in ICDs (Inter-corporate deposits) into LazyPay Private Limited stood at Rs 47 crores as on July 31, 2022, which is held in deposits by the company. |
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 offers LazyPay Plus, a BNPL product that is interest-free and valid for 30 days and offers personal loans to borrowers with a good repayment track record. Currently, the origination is being done in PayU Finance with PaySense’s as technology and sourcing partner along with other API lending partnerships. 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 1,174 crore (including co-lending book) as on March 31, 2022. The standalone on book portfolio in the books of PayU Finance was Rs 813 crore, of which, 68% was for personal loans, and 32% was BNPL. |
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 80% of its portfolio value listed, based on valuations as at March 31, 2022. Much of the exposure to listed equity is its Tencent stake, which was valued at about USD 132.3 billion at that date. Prosus' ten other listed assets had a combined market value of over $8.8 billion as on March 31, 2022. The value of the unlisted investment portfolio is estimated at USD 30.5 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 13.6 billion in cash and equivalents (including short-term cash investments) as on March 31, 2022, a USD 2.5 billion committed revolving credit facility and no debt maturities until July 2025. As of March 31, 2022, Prosus had USD 15.7 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: |
Annexure - Details of Instrument(s)
* WCDL limit of Rs 50 crore is sublimit of OD limit ^ WCDL Limit of Rs 50 crore is a sublimit of CC Limit # Cash Credit limit of Rs 10 crore is a sublimit of WCDL and OD limit of RS 2 Crores is 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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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 07-Sep-2022 in line with the lender-wise facility details as on 17-Aug-2021 received from the rated entity
Criteria Details
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