| Riviera Investors Private Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||
| Detailed Rationale |
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CRISIL's ratings on the bank facilities of Riviera Investors Private Limited (Riviera) continue to reflect healthy capitalisation metrics and easily scalable business aided by technology-based sourcing. These strengths are partially offset by the limited track record of operations and the inherent vulnerability of asset quality owing to the high share of unsecured loans, which in turn could impact the company's profitability metrics. |
| Analytical Approach |
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CRISIL has evaluated the credit risk profile of both Riviera and its parent, Indifi Technologies Pvt Ltd (Indifi), collectively referred to as group. |
| Key Rating Drivers & Detailed Description |
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Strengths * Healthy capitalisation Capitalisation metrics are comfortable supported by regular capital infusion. The group has raised about Rs 246 crore of equity since inception from a diverse set of sources such as private equity players, promoters and high networth individuals (HNIs) with Rs 145 crore being raised in July 2019. Consequently, the networth of the group stood at Rs 173 crore (including goodwill) while Riviera reported a networth of Rs 102 crore and Tier I ratio of 41.5% as on March 31, 2020. Adjusted gearing too was comfortable at 0.9 time and 1.6 times for the group and Riviera levels, respectively, as on March 31, 2020, and is expected to remain under 3 times at a standalone level on a steady state basis. CRISIL expects gearing to be maintained as the company will focus more on collections and is not likely to grow the book significantly over the next six months, thus providing a cushion against asset-side risks. * Easily scalable business aided by technology-based sourcing The group has adopted a branchless business model with most of the operations from sourcing to evaluation happening digitally. The company'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. As a result, the assets under management (AUM) has grown to Rs 357.9 crore as on March 31, 2020 from Rs 203.1 crore as on March 31, 2019 at the group level (Rs 230.0 crore and Rs 123.9 crore as on March 31, 2020 and March 31, 2019, respectively, for Riviera). The promoter's 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 company will remain a modest player in the overall financial ecosystem. Weakness * Limited track record of operations The group commenced operations as a market place 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. As on March 31, 2020, the AUM of the group has grown to Rs 357.9 crore of which around Rs 230.0 crore is on the books of Riviera. Nearly 100% of this is towards unsecured business loans. Although the platform has been operating since the past five fiscals, the seasoning in the book is limited and asset quality performance would need to be monitored over a longer period. Further, the business model of the group is based on a digital platform with a proprietary model for evaluating the credit profile of potential borrowers. The model is refined continuously based on the performance of the portfolio and feedback from the collections and credit teams. However, such a technology based lending model is at a very nascent stage in India. Given the fact that a lot of players are entering this space with similar type of model, the ability to significantly scale up the portfolio amidst increasing competition, as well as manage credit costs and operating expenses and therefore profitability needs to be seen. * Inherent vulnerability of asset quality leading to sharp increases; loan book lacks seasoning Given the focus on unsecured business loans, asset quality is susceptible to risks associated with weak credit profiles of borrowers. The group's AUM primarily consists of unsecured small and medium enterprises (SME) loans. The SME segment is vulnerable to cash flow cyclicality, which could result in potential slippages, and given the unsecured nature of the loans, recovery could also be limited. Amidst the current economic environment, the company's asset quality metrics have witnessed some deterioration since March 2019 with adjusted 90+ dpd (after adding back last 12 months write-offs) increasing to 7.6% at consolidated level and 8.7% at Riviera level as on March 31, 2020 (as compared to 4.5% and 4.2%, respectively, as on March 31, 2019). Having said that, the company has put in place comfortable credit risk management systems. It uses a proprietary credit risk model, which provides the score for each application filed that is used to evaluate credit decisions. The model runs stage-wise and rejects cases upfront at stage 1 based on the minimum possible data collected i.e. demographic, firmographic and bureau etc. from the customer. While the lending decision is primarily based on the output from the proprietary credit risk model, each application goes through a manual review before the final disbursement. Further, the group makes timely upgrades to the model based on the performance of the portfolio/collections experience. In addition, having first charge over the funds getting transferred from anchor partner to the borrower as a result of presence of escrow mechanism agreement with the partner also provides additional comfort. As on March 31, 2020, the portfolio of the group had 53% with an escrow control over funds to be transferred from the anchor partner to the borrower. Nevertheless, asset quality remains vulnerable to sharp increases given the credit profile of the underlying borrower segment. This along with limited seasoning in the portfolio could lead to potential slippages in future. Therefore, the ability to maintain asset quality while scaling up the loan portfolio remains a key monitorable. Furthermore, the impact of nationwide lockdown due to Covid 19 on collections and its impact on delinquency levels remains to be seen and CRISIL will closely monitor the same. * Constrained earnings profile owing to high operating expenses Owing to nascent stage of operations, operating expenses of the company, while coming down, have remained high given the investment in technological advancements and appointment of several employees at the senior management level. Consequently, the group has reported losses since inception at a consolidated level. CRISIL notes that some of the expenses are not recurring and linked to investment in technology. Nevertheless, on a standalone basis, Riviera continues to report profits since fiscal 2018. The group continues to invest in technology, ramp up their existing credit model and strengthen the employee base, which is expected to continue to keep the employee costs elevated. Further, inherent vulnerability of underlying borrower segment leading to high credit cost can also have a negative impact on the earnings profile due to stringent provisioning policy of writing off all loans, which have exceeded 180+ dpd. Therefore, given the business model of the group where yields are high and technology-led underwriting should result in operational efficiencies as the book grows, earnings profile hinges upon the ability to reduce operating expenses and manage credit costs. |
| Liquidity Adequate |
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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 March 31, 2020. On the liabilities side, the Reserve Bank of India (RBI) announced regulatory measures under 'Covid-19 - Regulatory Package'Â?, whereby lenders were permitted to grant moratorium on bank loans. Riviera has written to their lenders seeking moratorium and has received approval from some lenders. However, CRISIL understands that the approval of moratorium request by remaining lenders is still under process. |
| Outlook: Stable |
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CRISIL believes the group will benefit from its experienced promoters and management and will maintain its healthy capitalisation metrics over the medium term. However, asset quality performance will be demonstrated only over time and profitability is also likely to remain subdued with continued high operational expenditure. |
| About the Company |
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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. |
| Key Financial Indicators | ||||||||||||||||||||||||||||||||||||
**90+ dpd (including last 12 months write-offs) ***on-book borrowings + off book (securitisation) divided by networth Note: All the financial information for as on Mar-20 is provisional as per unaudited numbers |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 - 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 various bank facilities | ||||||||||||||||||||||||||||||
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| Links to related criteria |
| Rating Criteria for Finance Companies |
| CRISILs Criteria for Consolidation |
| For further information contact: | ||||||
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