| Profectus Capital Private Limited | ||||||
| Rated amount enhanced | ||||||
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| 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 bank facilities of Profectus Capital Private Limited (Profectus).
On July 30, 2021, CRISIL Ratings had upgraded its rating on the bank facilities of Profectus on account of demonstrated portfolio performance in a challenging environment as well as gradual improvement in the resource profile, with diversification in the lender base. Furthermore, the company also turned profitable in fiscal 2021.
Profectus offers secured advances to micro, small and medium enterprises (MSMEs) and focuses on enterprises with limited access to channels of formal financing. In line with the relief measures announced by the Reserve Bank of India (RBI) amid the Covid-19 pandemic, the company had provided moratorium to its borrowers. Though collections declined in the initial months of the first wave, they improved subsequently. However, the second wave of the pandemic led to intermittent lockdowns and localised restrictions, which impacted collections again. Consequently, collection efficiency[1] fell to 89% in May and June 2021 from 96% in March 2021. This was also reflected in inch-up in gross non-performing assets (NPAs) to 2.0% as on June 30, 2021, from 0.2% as on March 31, 2021. Restructuring stood at Rs 16.4 crore of loans (1.9% of the overall portfolio) as on August 31, 2021. The last date for invocation of restructuring is September 30, 2021, and hence the numbers are still under review.
With easing of restrictions, collections saw a gradual improvement from July onwards and increased to 91% in August 2021. Nevertheless, the ability of the company to manage collections and asset quality this fiscal will be a monitorable. The impact of the third wave of the pandemic—if and when it comes in terms of its spread, intensity and duration—will also be closely monitored.
While Profectus continues to rely on loans from banks and non-banking finance companies (NBFCs), it has been able to successfully diversify the lender base and now has relationships with over 17 lenders compared with only two as on March 31, 2020. Overall borrowings increased to Rs 421 crore as on June 30, 2021, and Rs 443 crore as on March 31, 2021, from Rs 103 crore as on March 31, 2020. Involvement of Actis in fundraising activities has helped Profectus leverage the former’s relationships. The company’s cost of borrowing at around 10% in fiscal 2021 was comparable with that of peers. It also plans to tap into capital markets over the medium term to further diversify its resource mix.
The ratings also reflect the healthy capitalisation of Profectus, supported by capital commitment from the 100% shareholder, Actis, and extensive experience of the senior management in the financial services space. These strengths are partially offset by small scale of operations and modest earnings. [1] doesn’t include collections against overdue demand. |
Analytical Approach CRISIL Ratings has assessed the standalone business and financial risk profiles of Profectus and has also factored in the capital commitment from Actis. |
Key Rating Drivers & Detailed Description Strengths:
Capitalisation is healthy, supported by networth of Rs 658 crore and gearing of 0.7 time as on March 31, 2021, compared with Rs 550 crore and 0.2 time, respectively, a year earlier. As on June 30, 2021, networth was Rs 660 crore and gearing was 0.6 time. Capitalisation is supported by regular capital infusion from Actis, which committed investment of USD 140 million (Rs 900-1,000 crore). The company has already received Rs 655 crore since its inception in June 2018, of which the latest tranche of Rs 100 crore was infused in March 2021. The remaining commitment of around Rs 350 crore is expected to fructify in the next 9-15 months in 2-3 tranches as per the business requirement.
Although the gearing will increase as the company scales up its operations, it should remain below 2-3 times over the next few fiscals and 5-6 times on a steady state basis. Furthermore, Actis is committed to regularly infusing capital as and when required in order to maintain business growth over the medium term.
The company was founded by Mr KV Srinivasan, who has extensive work experience and a track record of successfully building a retail MSME loan book. All the core members of the top management have worked with each other prior to joining Profectus and have a reputation of successfully managing the retail finance business.
Backed by its significant experience, the management has put in place strong systems and risk management processes at an early stage, which was critical to the business given the inherent vulnerability of the MSME customer segment. The company has an experienced board, and the top management is focused on institutionalising strong corporate governance principles. The experience of the management should continue to help scale up the loan book.
Weaknesses:
The company started disbursements in November 2017, and the scale of operations remains small as on date. The total portfolio was Rs 877 crore as on June 30, 2021, and Rs 893 crore as on March 31, 2021, against Rs 454 crore a year earlier. While growth in the loan book is expected to pick up in the near term as the pandemic subsides, the size will remain small over the medium term.
Profitability will remain modest, with elevated operating costs, which happened because of expansion of the branch network, related recruitment and investment in technology. Nevertheless, the company broke even in fiscal 2021 (under Ind-AS), with profit after tax (PAT) of Rs 6.8 crore against loss of Rs 0.7 crore a year earlier, along with rise in scale. Return on assets (RoA) stood at 0.7% in fiscal 2021 against negative 0.1% in the previous fiscal. In the first quarter of fiscal 2022, PAT was Rs 2.5 crore and annualised RoA was 1.1%. Credit cost was broadly stable at 0.8% (annualised) in the first quarter of fiscal 2022 and 0.5% in fiscal 2021 compared with 0.4% the previous fiscal. However, under IGAAP, the company broke even in the first half of fiscal 2020.
Profitability is expected to improve further, as the company ramps up its loan book and benefits from operational leverage accrual. However, given the relatively unseasoned portfolio, delinquencies and the company’s ability to manage its credit costs will be closely monitored. |
Liquidity: Adequate As on August 31, 2021, liquid investments were Rs 202 crore and unutilised bank lines were Rs 55 crore vis-a-vis debt obligation of Rs 86 crore over the four months through December 2021. Liquidity is further supported by the presence of Actis as the 100% shareholder, which can infuse funds within a short while in case of any exigency. |
Outlook: Stable Profectus will maintain its healthy capitalisation, supported by regular capital infusion from Actis. The experienced management is expected to help increase the company’s revenue along with reasonably healthy asset quality. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Profectus was founded in June 2017 by Mr K V Srinivasan, who earlier headed Reliance Commercial Finance and Reliance Home Finance. The company is registered with the RBI as a systemically important, non-deposit-taking NBFC. It has presence in 19 cities across 12 states and union territories. Actis, a global private equity firm, held a 100% stake in the company as on March 31, 2021.
Actis, founded in 2004 (after a spin-off from CDC Group plc, earlier known as Commonwealth Development Corporation), has raised USD 14 billion and has assets under management of over USD 10 billion. It has made more than 200 investments and over 160 exits globally. Actis has 15 offices globally and employs more than 200 people, including 120 investment professionals, in 10 countries.
In fiscal 2021, net profit was Rs 6.8 crore on total income (net of interest expense) of Rs 79.4 crore against loss of Rs 0.7 crore on total income (net of interest expense) of Rs 48.3 crore in the previous fiscal.
In the first quarter of fiscal 2022, net profit was Rs 2.5 crore on total income (net of interest expense) of Rs 23.8 crore. |
Key Financial Indicators
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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)
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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-Dec-2021 in line with the lender-wise facility details as on 05-Oct-2021 received from the rated entity.
Criteria Details
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