Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB/Stable’ to Rs 19 crore of non-convertible debentures of Riviera Investors Private Limited (Riviera) and reaffirmed the ratings on the existing debt instruments and bank facilities.

 

CRISIL Ratings has evaluated the credit risk profile of both Riviera and its parent, Indifi Technologies Pvt Ltd (Indifi), collectively referred to as Indifi group.

 

The rating reflects an improvement in the earnings profile at the consolidated level while scaling up of the portfolio. While scale has improved considerably, the group started reporting profits from Q4FY22 onwards and has been consistently reporting profits since then, thereby resulting in a half-year profits in September 2022. The rating also factors in the comfortable capitalization metrics supported by regular capital infusions and low leverage. The ratings however remain constrained by the inherent vulnerability of asset quality, given the unsecured asset class, which in turn could impact profitability.

 

The group has exhibited strong growth, with assets under management (AUM) growing at a 3-year compounded annual growth rate (CAGR) of 56% to reach at Rs 775 crore as on March 31, 2022 from Rs 203 crores as on March 31, 2019. The AUM further grew in first half of fiscal 2023, by an annualized growth rate of 104% reaching Rs 1178 crore as on September 30, 2022[1]. A fair share of the growth stemmed from the increasing co-lending proportion in the overall AUM which increased to 48% as of September 30, 2022, from 39% in March 31, 2019. The growth has also been supported by increasing anchor partnerships, which has helped group to generate higher leads over and above the organic sourcing.

 

As the portfolio scaled up, the earnings profile has also shown improvement with the group reporting profits from Q4FY22. With the benefit of operating efficiencies, the consolidated cost to income ratio has improved to 54% for the first half ended September 2022 as against 83% for fiscal 2021. Additionally, the credit costs for the group reduced to 1.9% for September 30, 2022 as against a peak of 4.9% for fiscal 2021. Consequently, the group has reported profits of Rs 3.4 crores for the first half of the current fiscal translating into a ROMA (including co-lending book) of 0.6%. Nevertheless, the cost of borrowing, while improving, continue to remain elevated. However, CRISIL Ratings expect the same to come down going forward. The group has raised Rs 305.5 crores in the first half of fiscal 2023. Improvement in the funding costs and further improvement in the earnings profile remains a key monitorable.

 

CRISIL Ratings also notes that the asset quality has shown improvement with 90+ dpd and adjusted 90+ dpd (including last 12 months write offs) improving to 1.8% and 4.3% as on September 30, 2022, as against 9.1% and 11.1% as on March 31, 2021. The improvement stemmed from the upgradation of the underwriting model along with intensified collection efforts. As of September 2022, the book generated post July 2021, accounted for almost 85% of the AUM, wherein the peak delinquency (post the second wave) as per static pool stood at 2.4%. The collections also reflect the improvement which stood in the range of 95%-99% across months, with recent collections being at 97% in the month of November 2022. Further, the restructured portfolio has also dropped considerably which stood at 1.2% as on September 30, 2022. Nevertheless, given the focus on unsecured loans, asset quality metrics are inherently vulnerable to slippages which remains a key monitorable.

 

Capitalization metrics continued to remain comfortable supported by regular capital infusion. The group has raised about Rs 390 crore of equity since inception, of which Rs 142 crores was raised in fiscal 2022, which has resulted in comfortable networth and low gearing levels of Rs 249.5 crore and 2.0 times at the consolidated level as on September 30, 2022.

[1] All figures in the document for September 2022 are as per provisional financials

Analytical Approach

CRISIL Ratings has evaluated the credit risk profile of both Riviera and its parent, Indifi Technologies Pvt Ltd (Indifi), collectively referred to as Indifi group.

 

Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy capitalisation

Capitalisation metrics are comfortable supported by regular capital infusion. The group has raised about Rs 390 crore of equity since inception from a diverse set of sources such as private equity players, promoters and high networth individuals (HNIs) with Rs 142 crore being raised in FY 2022. The networth of the group remained comfortable at Rs 250 crore while Riviera reported a net worth of Rs 158 crore as on September 30, 2022. Adjusted gearing too was comfortable at 2.0 times and 3.3 times for the group and Riviera levels, respectively, as on September 30, 2022. CRISIL Ratings expects gearing to be maintained supported by regular capital raise, thus providing a cushion against asset-side risks.

 

• Easily scalable business aided by technology-based sourcing

The group commenced operations as a marketplace with the company Indifi from fiscal 2015 onwards. However, the portfolio of its own non-banking finance company (NBFC), Riviera started on-balance sheet lending only in fiscal 2017. The group has adopted a branchless business model with most of the operations from sourcing to evaluation happening digitally. The group’s business model involves partnering with anchors for segment specific approach and also direct online lending, where sourcing through anchor partners constitutes a significant chunk of the portfolio. Over the last few years, the group has been consistently adding anchor partners which has helped it to generate higher leads over and above the organic sourcing.

 

The group has exhibited strong growth, with assets under management (AUM) growing at a 3-year compounded annual growth rate (CAGR) of 56% to reach at Rs 775 crore as on March 31, 2022 from Rs 203 crores as on March 31, 2019. The AUM further grew in first half of fiscal 2023, by an annualized growth rate of 104% reaching Rs 1178 crore as on September 30, 2022. A fair share of the growth stemmed from the increasing co-lending proportion in the overall AUM which increased to 48% as of September 30, 2022, from 39% in March 31, 2019. The growth has also been supported by increasing anchor partnerships, which has helped group to generate higher leads over and above the organic sourcing.

 

The promoters’ background, an experienced management, and relationships in the market, along with an ability to raise capital should help in scaling up of portfolio going forward. While growth momentum is expected to continue over the medium term, the group will remain a modest player in the overall financial ecosystem.

 

Weakness:

• Inherent vulnerability of asset quality metrics; however, incremental originations showing improved performance

With the scale-up in the portfolio, the asset quality has shown improvement with 90+ dpd and adjusted 90+ dpd (including last 12 months write offs) improving to 1.8% and 4.3% as on September 30, 2022, as against 9.1% and 11.1% as on March 31, 2021.

 

The improvement stemmed from the upgradation of the underwriting model along with intensified collection efforts.In the past, most of the stress for the group, has come from high exposures in segments like hotels, restaurants and travel, which got impacted during Covid-19. The group had started reducing its exposure to travel even before the pandemic. Further, at the initial stage of the pandemic, the group had also started reducing its exposure in other impacted segments.

 

Consequently, the post-covid book (after the second wave), which constituted 85% of the overall book, remained relatively clean from the previously impacted portfolio. As of September 2022, the book generated post July 2021, accounted for almost 85% of the AUM, wherein the peak delinquency (post the second wave) as per static pool stood at 2.4%. The collections also reflect the improvement which stood in the range of 95%-99% across months, with recent collections being at 97% in the month of November 2022.

 

Additionally, the overall restructured portfolio also remained low at 1.2%. Nevertheless, given the focus on unsecured loans, asset quality metrics are inherently vulnerable to slippages which remains a key monitorable.

 

• Moderate earnings profile

The comfortable asset quality metrics and robust risk management resulted in an improvement in credit costs since the last fiscal, with the same dropping to 1.9% in September 2022, as against a peak of 4.9% for fiscal 2021. Further, with scale, the operating efficiencies of the group have also shown improvement with the cost to income ratio improving to 54% for the first half ended September 2022 as against 83% for fiscal 2021.

 

As a result of improvement in the credit costs and operating expenses, coupled with increase in the top-line due to co-lending, the group started generating profits on quarterly basis from Q4FY22. The group continued to generate profits in the subsequent quarters also, thereby reporting a half-year profits in the first half of fiscal 2023. The group has reported profits of Rs 3.4 crores for the first half of the current fiscal translating into a ROMA (including co-lending book) of 0.6%.

 

Nevertheless, the cost of borrowing, while improving, continue to remain elevated. However, CRISIL Ratings expect the same to come down going forward. The group has raised Rs 305.5 crores in the first half of fiscal 2023. Improvement in the funding costs and further improvement in the earnings profile remains a key monitorable.

 

Further, as the group’s AUM primarily consists of unsecured small and medium enterprises (SME) loans, which is vulnerable to cash flow cyclicality, the asset quality remains vulnerable to sharp increases given the credit profile of the underlying borrower segment. Therefore, the ability to maintain the credit cost while scaling up the loan portfolio also remains a key monitorable.

 

Additionally, while the operating expenses have improved, they remained high. Consequently, tight control over operating expenses as the group scales up, will also remain a key monitorable.

 

Nevertheless, CRISIL Ratings expects profitability to improve further, going forward. Any substantial impact on the earnings profile remains a key monitorable.

Liquidity: Adequate

The ALM profile is comfortable with no cumulative negative mismatches upto one-year bucket even after excluding line of credit committed from other institutions as on September 30, 2022. The liquidity position is comfortable with the group having a 3 months’ cover on debt repayments (including interest expense and DA/PTC pay-outs) of 1.0 times. The group has total debt obligations of Rs 111 crore from December 2022 to February 2023 against which it had Rs 111 crore of liquidity as on November 30, 2022 at the group level.

Outlook Stable

CRISIL Ratings believes the group will benefit from its experienced promoters and management and will maintain its healthy capitalisation metrics over the medium term. However, sustainence in asset quality metrics and improvement in earnings profile with an improvement in cost of borrowings are key monitorables.

Rating Sensitivity factors

Upward factors

• Sustainable improvement in asset quality with 90+ dpd (including write-offs) as the portfolio scales up.
• Improvement in the earnings profile while increasing the scale of operations with RoMA inching beyond 1.5%-2% on a steady state basis

 

Downward factors

• Any adverse movement in asset quality metrics over the near to medium term, leading to impact on the earnings profile
• Moderation in capitalisation metrics with a sustained increase in gearing levels to beyond 4 times at the consolidated level

About the Company

Riviera is a wholly-owned NBFC of Indifi that was set up in 2015 as an online marketplace connecting (SMEs) with lenders. Indifi houses the proprietary lending model, evaluation from which leads to a lending decision. On the platform, the respective lenders who are affiliated with the company, have provided some additional parameters, which are looked at while deciding upon the eligibility criteria of the borrowers.

 

Indifi acquired Riviera in fiscal 2017. The NBFC sources its loans from the ‘Indifi platform’ and uses Indifi’s proprietary lending model for the evaluation of the credit profile of the customers. The lending principle is based on credit evaluation using a proprietary scoring model with minimum human interface and therefore, with a significantly faster turnaround time.

 

For the first half ending fiscal 2023, Riviera reported a profit after tax of Rs 5.8 crore on a total income of Rs 62 crore compared to Rs 0.1 crore and Rs 81 crore, respectively, in fiscal 2022. On a consolidated basis, the group reported a profit after tax of Rs 3.4 crore on a total income of Rs 95 crore in the first half of fiscal 2023, as compared to net loss of Rs 32.8 crore on total income of Rs 105.8 crore in fiscal 2022. 

Key Financial Indicators: (Consolidated)

As on/for the period ending	Unit	Sep-22#*	Mar-22	Mar-21	Mar-20
Total assets	Rs crore	792	635	388	345
Total assets under management (incl. partner book)	Rs crore	1178	775	442	358
Total income	Rs crore	95	106	66	61
Profit after tax	Rs crore	3.4	-32.8	-36.7	-32.2
90+ dpd	%	1.8	2.3	9.1	2.7
Adjusted 90+ dpd (after adding back last 12 months write-offs)	%	4.3	6.3	11.1	6.7
On-book gearing	Times	2.0	1.4	1.6	0.8
Adjusted gearing**	Times	2.0	1.5	1.7	0.9
Return on managed assets@	%	0.6	Negative	Negative	Negative

*Figures as per provisional financials

#All ratios are annualized

**on-book borrowings + off book (securitisation) divided by networth

@Managed assets = Total assets + co-lending book + securitized book

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs. cr)	Complexity level	Rating outstanding with outlook
INE0GOL07020	Non-convertible Debenture	31-Aug-21	14.2	25-Aug-23	20	Complex	CRISIL BBB/Stable
INE0GOL07012	Non-convertible Debenture	13-May-21	14.35	13-May-23	20	Complex	CRISIL BBB/Stable
INE0GOL07038	Non-convertible Debenture	28-Jun-22	12.25	28-Dec-23	20	Simple	CRISIL BBB/Stable
INE0GOL07046	Non-convertible Debenture	30-Aug-22	3 year SBI MCLR	07-Mar-25	22	Complex	CRISIL BBB/Stable
INE0GOL07053	Non-convertible Debenture	30-Sep-22	3 year SBI MCLR	31-Mar-25	18	Complex	CRISIL BBB/Stable
NA	Non-convertible Debenture*	NA	NA	NA	19	Simple	CRISIL BBB/Stable
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	100	NA	CRISIL BBB/Stable
NA	Term Loan 2	NA	NA	10-Nov-23	15	NA	CRISIL BBB/Stable
NA	Term Loan 3	NA	NA	31-Oct-25	35	NA	CRISIL BBB/Stable
NA	Commercial Paper	NA	NA	7-365 days	30	Simple	CRISIL A2

*Yet to be issued