Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Stable’ rating on the long-term bank facility and fixed deposits of Punjab Kashmir Finance Limited (Punjab Kashmir Finance; part of the PKF group).

 

The ratings continue to reflect the extensive experience and long-standing presence of the group’s management in the asset-financing business. The rating also factors in the group’s adequate capital position with comfortable gearing position. These strengths are partially offset by the moderate scale of operations with regional concentration and average asset quality

 

Group’s portfolio grew by around 10% to about Rs 263 crore as on March 31, 2024, from Rs 240 crore as on March 31, 2023.  However, during the first half fiscal 2025, the AUM de-grew slightly by around 2% (YTD) to Rs 260 crore as on September 30, 2024. The management continues to maintain a conservative approach towards growth and continuous focus towards collections and recovery. The group also diversified its portfolio into NBFC funding and LAP segment only in Q4 of fiscal 2022 and E-rickshaw loans in fiscal 2023. The company has been foreseeing better opportunities in E-rickshaw segment and hence the portfolio within this segment grew to around 8% during last 6-8 quarters. LAP and funding to NBFCs continued to account for 8% and 10% respectively as on September 30, 2024.

 

Capital position of the group is adequate for current and planned scale of operations, with networth of Rs 88.4 crore and gearing of 2.4 times as on September 30, 2024 (Rs 84.9 crore and 2.4 times as on March 31, 2024). PKF Finance and Punjab Kashmir Finance in the group are among the non-banking financial companies (NBFCs) that have a deposit-taking license. The company also has a demonstrated track record of raising funds through deposits and has maintained a high renewal rate.

Analytical Approach

The PKF group comprises of entities: PKF Finance, Punjab Kashmir Finance, Punjab Reliable Investments Pvt Ltd and Reliable Agro Engineering Services Pvt Ltd. For arriving at the ratings, CRISIL Ratings has combined the financial and business risk profiles of all the group entities because of high business integration and common promoters.

 

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:

• Experience of the promoters: Managing Director Mr. Alok Sondhi and Joint Managing Director Mr. Vivek Sondhi have been in the asset financing business for over 35 years. The group has been in the business for more than 6 decades and has passed through several economic cycles. It has maintained a strong brand in Punjab, Delhi, Haryana, and Chandigarh, and competes with banks and other large non-banking financial companies (NBFCs). The long-standing presence and strong brand image in the regions that PKF group operates in has helped them to raise debentures and public deposits at competitive rates.

 

• Adequate capital position supported by internal accruals: Consolidated networth for the group stood at Rs 88.4 crore and gearing of 2.4 times as on September 30, 2024 (Rs 84.9 crore and 2.4 times as on March 31, 2024). Overall gearing was also comfortable at 2.4 times as on September 30, 2024 (2.4 times as on March 31, 2024) and has remained below 4 times over the past decade. Furthermore, the capital position has remained supported by healthy accretions; the group’s earnings profile has remained healthy with RoA of 3.3% (annualized basis) during first half fiscal 2025 (3.1% during fiscal 2024). On an overall basis, the capital position is expected to remain adequate given the group has a philosophy of operating at a relatively low gearing level. In terms of capital infusion, promoters possess the ability to infuse funds at any point in time. However, given the moderate growth plans, CRISIL Ratings believes that the gearing is expected to remain steady over the medium term.

 

Weaknesses:

• Average, though improving, asset quality: PKF group’s asset quality, while remaining average, has shown some improvement in the recent past in comparison to its historical performance. The 90+ dpd of the group improved to 2.2% as of March 31, 2024, from a range of 6-8% as on March 2022 and March 2023. Nevertheless, the delinquencies have again shown an increasing trend during the first half fiscal 2025 with 90+ dpd reaching 3.9% as on September 30, 2024. On an absolute basis, the 90+ dpd almost doubled to Rs 10.3 crore as on September 30, 2024, from Rs 5.7 crore as on March 31, 2024. However, the group has been able to manage its delinquency position by making sufficient recoveries thereby not having any major impact on its profitability or any other metrics. Nevertheless, CRISIL Ratings will continue to closely monitor the asset quality situation over the medium term. The group’s ability to contain incremental delinquencies in both vehicle as well as non-vehicle financing business segment (LAP and funding to NBFCs) will remain key monitorable.  

 

• Modest scale of operations with regional concentration: Group’s portfolio grew by around 10% to about Rs 263 crore as on March 31, 2024, from Rs 240 crore as on March 31, 2023. However, during the first half fiscal 2025, the AUM de-grew slightly by around 2% (YTD) to Rs 260 crore as on September 30, 2024. The management continues to maintain a conservative approach towards growth and continuous focus towards collections and recovery. The scale of operations for the group is small and concentrated in the northern states of Punjab, Haryana, Delhi, Himachal and Uttarkhand. In spite of being in operations for six decades and a network of 15 branches, the group has remained small to mid-sized player. Though the group intends to scale up operations, it will likely remain a small retail financing player with regional focus, over the medium term.

Liquidity: Adequate

As on October 31, 2024, PKF group had liquidity of Rs 21.6 crore in terms of cash and equivalent, including liquid investments, in addition to unutilized CC limit of Rs 16.8 crore. The group's liquidity buffer (assuming nil collections) to cover total debt and loan repayment and operating expenses arising over 3 months upto February 2025 is above 2 times.

Outlook: Stable

CRISIL Ratings believes the PKF group will continue to benefit from the experience of the promoters and maintain adequate capitalisation over the medium term.

Rating sensitivity factors

Upward factors:

• Improvement in scale of operations by achieving higher portfolio size while maintaining asset quality and profitability
• Asset quality been maintained with gross NPA level (90+ dpd) below 4.0% on a consistent basis
• Earnings profile, in terms of RoA, maintained at over 2.5%

 

Downward factors:

• Increase in steady state gearing above 5 times
• Deterioration in asset quality leading to an increase in credit costs and its consequent impact on profitability with significant fall in RoA from present level

About the Group

Punjab Kashmir Finance, entity of the PKF group, was established by Mr. Balbir Raj Sondhi in 1958 to provide loans for purchasing CVs. The group has diversified into financing passenger cars, earthmoving equipment, medical equipment, and industrial and other machinery in recent years. The group also extends business loans (against property) to well-known corporate entities or their promoters. The group has operations in Punjab, Delhi, Himachal Pradesh, and Haryana. Its loan portfolio was around Rs 260 crore as on September 30, 2024.

 

The PKF group had a net profit of Rs 9.8 crore and total income of Rs 46.6 crore during fiscal 2024, compared to Rs 5.6 crore and Rs 40.9 crore, respectively, in fiscal 2023. For the six months ended period through September 2024, net profit was Rs 5.4 crore and total income was Rs 25.2 crore.

 

Punjab Kashmir Finance reported a net profit of Rs 1.9 crore and total income of Rs 11.7 crore during the first half fiscal 2025. During fiscal 2024, the company reported PAT of Rs 4.6 crore on total income of Rs 21.1 crore respectively (PAT Rs 2.3 crore and total income of Rs 18.9 crore respectively during fiscal 2023).

Key Financial Indicators: PKF Group

As On/For Period Ended	Unit	‘Sep 2024/H1 Fiscal 2025	2024	2023	2022
Total assets	Rs crore	333.6	321.8	309.6	307.8
Total income	Rs crore	25.2	46.6	40.9	39.3
Profit after tax	Rs crore	5.4	9.8	5.6	4.5
90+ dpd	%	3.9	2.2	6.6	8.3
Gearing	Times	2.4	2.4	2.6	2.7
Return on assets	%	3.3*	3.1	1.8	1.5

*annualised

Any other information: Not Applicable