| Poonawalla Fincorp Limited | ||||
| ‘CRISIL AA+/Stable’ assigned to Bank Debt; Non Convertible Debentures; CP Reaffirmed | ||||
| 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 long-term rating of ‘CRISIL AA+/Stable’ to non-convertible debentures and bank facilities of Poonawalla Fincorp Limited (PFL; erstwhile Magma Fincorp Limited). CRISIL Ratings has also reaffirmed its short-term rating of ‘CRISIL A1+’ on the commercial paper programme.
The rating factors in the expectation of need based timely support from Cyrus Poonawalla Group, whose flagship company is Serum Institute of India Private Limited (SIIPL; rated CRISIL AAA/Stable/CRISIL A1+’), through Rising Sun Holdings Private Limited (RSHPL), a special purpose vehicle owned and controlled by Mr Adar Poonawalla, given the high strategic importance, the shared brand name and management control.
The ratings also factor in the enhanced financial flexibility, post the significant capital infusion of Rs 3,456 crore in May 2021 resulting in healthy capitalization and low leverage. Of this, equity infusion of Rs 3,206 crore came from RSHPL, with remaining amount infused by promoters of erstwhile Magma.
Additionally, the revamped senior management team consisting of seasoned professionals from reputed financial institutions and ongoing improvement in resource profile and funding costs are also the key strengths driving the ratings.
These strengths are partially offset by the currently moderate asset quality, though adequately provisioned, and modest earnings profile due to accelerated provisioning. The earnings profile is gradually improving with rising margins. Asset growth and credit quality of its realigned product mix remains a monitorable. |
Analytical Approach To arrive at the ratings, CRISIL Ratings has combined the business and financial risk profiles of Poonawalla Fincorp Ltd (PFL) and Poonawalla Housing Finance Limited (PHFL). This is because these companies, collectively referred to as the Poonawalla Fincorp Group, have common directors, governance oversight and synergistic operations, and are strategically important to the group’s business growth. The ratings also factor in the expectation of need based timely support to PFL and PHFL from Cyrus Poonawalla Group, whose flagship company is Serum Institute of India Private Limited (SIIPL, rated; CRISIL AAA/Stable/CRISIL A1+), given the majority ownership and high strategic importance, the shared brand name and managerial control.
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 group’s flagship company, SIIPL is among the largest vaccine manufacturers globally by number of doses produced. Its vaccine portfolio includes vaccines for DTP, MMR, Polio, Hib, r-Hepatitis B, Rabies and Rotavirus. It also manufactures Covishield vaccine against Covid-19 in India. CRISIL notes that over the past 4-5 years, SIIPL has been funding investments in subsidiaries and other companies of the Poonawalla group. SIIPL’s investments are well diversified across sectors including financial services, green energy, real estate, aviation, pharmaceutical packaging, etc. In April 2021, Rising Sun Holdings, owned and controlled by Mr Adar Poonawalla, funded the acquisition of erstwhile Magma Fincorp Limited.
In CRISIL Ratings’ view, Poonawalla Fincorp Group remains of strategic importance to Cyrus Poonawalla Group, given the majority ownership through RSHPL and operational control with respect to group having prominence on the board, with Mr Adar Poonawalla being the chairman of the board, and active involvement of the board in the group level strategies.
Additionally, the brand sharing further enhances the expectation of support to the financial services entity if and when required. Considering the overall strategic importance, CRISIL Ratings expects the parent to provide timely, need-based financial support in case of any exigency, though the current capital buffers appear sufficient over the medium term, as per the budgeted plans.
The sizeable equity infusion led to a significant increase in the group’s networth to Rs 5,841 crore as on September 30, 2021, as against Rs 2,194 crore as on March 31, 2021. Consequently, the adjusted gearing also dropped significantly to 1.7 times as on September 30, 2021, as against 5.5 times as on March 31, 2021. Going forward, as the group scales up its operations, the gearing metrics are expected to increase. However, the same are not expected to go beyond 5 times on steady state basis.
With the change in ownership to the Cyrus Poonawalla group, the company is expected to benefit through access to diversified funding mix covering capital markets and bank loans at lower funding costs. Prior to acquisition, erstwhile Magma had higher reliance on PSU bank loans and off-book funding and hence, high cost of funding. With the change in management, the group is broad basing their funding sources including access to capital markets in addition to diversified bank funding by introducing private sector and foreign banks. The group recently raised CPs after more than 2 years. The group has also been able to reprice their existing loans to lower rates thereby improving gross spreads. The group is currently raising funds at below 6.5% per annum. With the recent equity infusion, and fresh bank sanctions, the group has a healthy liquidity position.
Post the preferential issue, the group is governed by new board of directors, with Mr Adar Poonawalla being the chairman of the board. The board is supported by a newly on-boarded strong senior management with relevant and significant experience in retail financing, having previously worked at reputed banks and NBFCs. Over the last seven months, the group has strengthened its leadership, by onboarding highly experienced key personnel taking on the roles of group chief executive officer, group chief financial officer, chief risk officer, group chief technology officer, group chief operating officer and group treasury head among other verticals. These senior management personnel have been in the industry for more than two decades each and have extensive experience in their functional areas.
Weaknesses:
Poonawalla Fincorp group has reported a Gross Stage 3 (GS3) assets of 4.1% in Q2FY2022, as compared to 3.7% as on March 2021 (6.4% as on March 31, 2020). The reduction in GS3 in fiscal 2021, was primarily on account of adopting a more conservative write-off policy, as part of the group’s new strategy.
Additionally, the group has restructured around 5.9% (Rs 899 crore) of the total AUM as on September 30, 2021. Of the total restructured portfolio, Rs 523 crore (58%) was in 0 bucket. However, for the purpose of asset classification and provisioning, the group has classified Rs 753 crore (84%) under stage 2. The group has provisioning of around 18% on the restructured portfolio as on September 30, 2021.
The collection efficiency, after getting impacted during April and May 2021 due to second wave of Covid-19, has seen consistent improvement from June 2021 onwards, reaching 99.9% in September 2021.
The new management has realigned the product mix of the group with greater focus on better quality, credit-tested, mass-affluent customers in urban and semi-urban geographies, along with discontinuation of some products of erstwhile Magma Fincorp. The product strategy is primarily aimed at minimizing the credit costs in future and focusing on products with digital collections. The group has added personal loans, loans to professionals, SME LAP and small ticket LAP to its product basket and has continued to disburse loans for pre-owned cars (non-commercial) and affordable housing. The ability of the group to grow its portfolio, while maintaining comfortable asset quality metrics will remain a key monitorable.
Poonawalla Fincorp reported a loss of Rs 559 crore in fiscal 2021 at group level. The loss was mainly on account of adoption of a conservative provisioning and write-off policy and management overlay provisions in light of Covid-19 wave 2 impact. The group has adopted a conservative write-off policy, wherein unsecured loans above 90+ DPD (Days Past Due) are fully provided for. As a result, provision-coverage ratio rose significantly and stood at 69% as on March 31, 2021 from 37% as on March 31, 2020. Pre provisioning profits stood at Rs.694 crore for fiscal 2021 in comparison to Rs 572 crore for previous fiscal, a year-on-year increase of 21%.
The profitability metrics improved in the first half of fiscal 2022, with Poonawalla Fincorp reporting a net profit of Rs 160 crore (Y-O-Y increase of 111%) at group level. The profitability was supported by improved NIMs due to reduced cost of borrowings post the recent ownership change, capital infusion and reduced credit costs as the group took a one-time hit of revised provisioning policy on its books in fiscal 2021 itself. As on September 30, 2021, even post write-offs, the group held high stage 3 provisioning cover of 52.1%.
While the group has shown improvement in its earnings profile, the ability of the group to manage its credit costs, considering new origination, remains to be seen and will remain a key monitorable. At the same time, with increased focus towards end-to-end digitization entailing upfront investments, the operating expenses are expected to inch-up in the near term.
The erstwhile Magma Group was primarily into vehicle and housing finance business with portfolio diversified across various product segments, such as commercial vehicle finance (CV), construction equipment (CE), car loans, tractor financing, secured SME loans and home loans. Post-acquisition, the new management revised its product strategy, targeting good quality, credit-tested, mass-affluent retail consumers and small businesses in semi-urban/urban locations. Consequently, the group announced its plans to discontinue some loan products in their previous form like CV, CE, tractors and new cars segment. The group had a consolidated AUM of Rs 15,275 crore as on September 30, 2021, as against Rs 14,225 crore as on March 31, 2021 and Rs 16,134 crore as on March 31, 2020. Of this, the discontinued portfolio constituted around 29% as on September 30, 2021, which is expected to run down over the period of next 24-30 months.
As per the new business strategy, the group plans to achieve a 3x growth in its AUM by fiscal 2025, by focusing on products consisting of a mix of secured (pre-owned car loans, affordable home loans, SME LAP, small ticket LAP) and unsecured products (personal loans, business loans, loans to professionals). Over the medium term, the group plans to maintain a secured to unsecured ratio of around 65:35. Additionally, as part of its new strategy, for its unsecured segment, the group will move towards a branchless model and will invest in technology to make the entire process, from origination to collection, digitally enabled. For the secured segment, the group will rationalize its branches as per the new product strategy.
Nevertheless, the business performance in these segments as they scale up will remain a key monitorable. |
Liquidity: Strong Liquidity remains comfortable with group having cash and cash equivalents of Rs 638 crore, and unutilized working capital lines of around Rs 2594 crore as on December 31, 2021. Against the same, the total debt repayments (including securitisation payouts) over the 3 months till March 2022 is around Rs 1199 crore. In addition, the group has partly drawn term loan lines of Rs 1490 crore. As on December 31, 2021, the ALM profile of the group remained strong with positive cumulative gaps across all the buckets, as a result of large equity base. |
Outlook: Stable The rating factors in the expectation of need based timely support from Cyrus Poonawalla Group, whose flagship company is Serum Institute of India Private Limited (SIIPL; rated CRISIL AAA/Stable/CRISIL A1+’), through Rising Sun Holdings Private Limited (RSHPL), a special purpose vehicle owned and controlled by Mr Adar Poonawalla, given the high strategic importance, the shared brand name and management control. |
Rating Sensitivity factors Upward factors:
Downward Factors:
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About the Poonawalla Group Incorporated as Magma Leasing Ltd, the company commenced its operations in 1989. The company was renamed to Magma Fincorp Limited in 2008 and Poonawalla Fincorp Limited in 2021 post the acquisition by Rising Sun Holdings Private Limited (an entity owned and controlled by Mr Adar Poonawalla). The company has a diversified product offerings in consumer and business finance including personal loans, loans to professionals, business loans, SME LAP, pre-owned car loans, etc.
In February 2013, erstwhile Magma Fincorp acquired GE Money Housing Finance. Post-acquisition, the company was renamed Magma Housing Finance Ltd. Magma Housing Finance Limited was rebranded as Poonawalla Housing Finance Limited, post the acquisition by Rising Sun Holdings Private Limited. Poonawalla Housing Finance Limited product offerings include affordable home loans and affordable LAP. |
Key Financial Indicators
*As per IndAS **Annualised # Profit after tax by total assets + securitisation (Assignment) |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*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 | ||||||||
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This Annexure has been updated on 31-Jan-22 in line with the lender-wise facility details as on 31-Jan-22 received from the rated entity.
Criteria Details
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