Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings on the bank facilities and debt instruments of Rupeek Capital Private Limited (RCPL; part of the Rupeek group). CRISIL Ratings has also withdrawn its ratings on Non-Convertible Debentures of Rs.50 crores (See 'Annexure - Details of Rating Withdrawn’ for details) on receipt of required documentation for redemption. The withdrawal is in line with the CRISIL Ratings Policy on withdrawal

 
The ratings continue to reflect the comfortable capitalisation of the Rupeek group, as indicated by healthy gearing and regular capital infusion by high-pedigree private equity (PE) investors, and its strong asset quality. These strengths are partially offset by limited growth in portfolio, weak profitability and modest resource profile.

 

The group primarily offers gold loans through an online platform and through a door-step service. As on December 31, 2023, it had assets under management (AUM) of Rs 1659.3 crore, of which, Rs 209.8 crore was own-book (offered through RCPL) and Rs 1,449.5 crore was off-book — the off-book portfolio (which is a major portion of the AUM) pertains to assets originated by Rupeek Fintech Pvt Ltd (RFPL) through its online platform on behalf of its lending partners. The AUM has largely remained stagnant, slipping 0.77% (annualised figure) during the first nine months of fiscal 2024 (from Rs 1,669.1 crore as on March 31, 2023). The group has added a few more banking correspondent relationships and expects to improve growth over the medium term. Given the competitive intensity in the gold loan segment, the ability of the group to scale up both, its own book portfolio and overall, AUM, will remain monitorable.

 

Portfolio quality has remained healthy owing to highly the liquid nature of the underlying asset. The asset quality for RCPL improved with 90+ days past due (dpd) at 2.3% as on December 31, 2023, compared with 4.1 % as on March 31, 2023 (1.5% as on March 31, 2022). There has been improvement at the consolidated level, too, with 90+ dpd at 0.3% as on December 31, 2023, compared with 0.8% as on March 31, 2023 (2.9% as on March 31, 2022).

 

The group adopted various cost cutting measures to improve profitability during fiscal 2024. While the group continues to incur losses, the intensity has reduced. During the first nine months of fiscal 2024, net loss at the consolidated level including non-cash expenses was Rs 116.1 crore, compared with Rs 281.5 crore for fiscal 2023 and Rs 364.4 crore for fiscal 2022. The group reduced operating expense (operating expenses/average managed assets) to 11.8% during the first nine months of fiscal 2024 from 15.8% during fiscal 2023 (19.7% during fiscal 2022). Apart from optimisation of operating costs, the ability of the group to grow own-book portfolio substantially will remain critical. Ability to achieve substantial operating efficiency in order to report profits will also remain a key rating sensitivity factor.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of RCPL and its parent, RFPL. This is because the two companies, together referred to as the Rupeek group, have significant operational, financial and managerial linkages. Additionally, all the equity is raised by the parent, which is then infused into RCPL.

 

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:

• Comfortable capitalisation supported by regular infusion by high-pedigree PE investors

As on December 31, 2023, the Rupeek group had a networth of Rs 204.9 crore and gearing of 0.7 time as against Rs 227.8 crore and 0.6 time, respectively, as on March 31, 2023. The capitalisation is supported by regular infusions by investors. The group has raised Rs 1,122.4 crore since its inception from a diverse set of PE firms and angel investors. Some of them are Sequoia Capital, Accel Partners, GGV Capital, Bertelsmann India, Binny Bansal's BTB Ventures, Vostok Emerging Finance, Highline Investments, Tanglin Venture Partners, KB Investments Co, Kwidnet Holdings, and Gemini Investments. During the first nine months of fiscal 2024, the group raised around Rs 42.7 crore from existing investors. The parent company plans to raise about Rs 60 crore by the end of the fourth quarter of fiscal 2024 to support growth and cash flow. Furthermore, RFPL has infused equity of Rs 78 crore. Ability to raise capital at favourable valuations will be a rating sensitivity factor.

 

• Strong asset quality, albeit moderation in fiscal 2023

The 90+ dpd for RCPL improved to 2.3% as on December 31, 2023, from 4.1% as on March 31, 2023. At the group level, the 90+ dpd improved to 0.3% as on December 31, 2023, from 0.8% as on March 31, 2023 (2.9% as on March 31, 2022). All the loans originated by the group are first appraised by its loan managers and then by the loan officers of the respective lending partner. This dual appraisal mechanism, combining the strict underwriting norms of banks, helps avoid misappraisal and ensures a tight control on deviations. The group focuses on big-ticket loans (minimum ticket size is Rs 1 lakh) that are majorly for working capital purposes rather than for intermittent consumption, to ensure the target segments generate enough returns on the loans deployed to be able to repay the loans. The current average ticket size is Rs 1-3 lakh. The group did not incur any ultimate loss on auction in the first nine months of fiscal 2024 and in fiscal 2023, and only in a few auctions in fiscal 2022. Gold being a secured and resilient asset class, the credit loss on ultimate basis is expected to be negligible considering the requirement to always maintain minimum margins. However, ability to maintain and stabilise asset quality while scaling up the loan portfolio remains monitorable.

 

Weaknesses:

• Limited growth in portfolio

The group primarily offers gold loans through an online platform and through a door-step service. As on December 31, 2023, its AUM was Rs 1659.3 crore — Rs 209.8 crore own (offered through RCPL) and Rs 1449.5 crore pertaining to assets originated by RFPL through its online platform on behalf of its lending partners. The AUM slipped 0.77% (annualised figure) in the first nine months of fiscal 2024 (from Rs 1,669.1 crore as on March 31, 2023). The group has added a few more banking correspondent relationships and expects to improve growth over the medium term. Lending partners on the Rupeek platform comprise Federal Bank, Cholamandalam Investment and Finance Company Ltd, South Indian Bank, Indian Bank, Liquiloans and RCPL. As ramp-up of operations is linked to signing up with more lending partners and is subject to competition, the ability to scale up the portfolio will be monitorable. Also, given the intense competition in the gold loan segment, ability to scale up both, own-book portfolio and overall AUM, remains monitorable.

 

• Weak profitability

The group's business model does not require significant recurring operating costs associated with the traditional brick-and-mortar model. However, the group incurred significant employee cost to set up a management team and online field staff and engage engineers to develop its online gold loan platform. It also incurred substantial marketing expenses in educating customers of its unique business model and for penetrating into new cities. Employee expense comprised 57.4% of the total expense for RFPL for the first nine months of fiscal 2024. The group functions through its online platform and has minimal branches in the 63 cities it operates in. It has so far achieved breakeven at the contribution margin level in all cities. With focus on profitability and methods adopted to reduce operating expenses, the group curbed its operating expense (operating expenses/average managed assets) to 11.8% for the first nine months of fiscal 2024 from 15.8% during fiscal 2023 (19.7% during fiscal 2022).

 

Early in fiscal 2022, the group introduced low-yield gold loans to gain market share, which resulted in reduction in net interest margin (NIM). However, it has reverted to disbursing higher yield gold loans which resulted in NIM (net interest to total managed assets) increasing to 4.1% (annualised) for nine months of fiscal 2024 from 2.8% during fiscal 2023 (4.6% during fiscal 2022). This, along with the high, albeit reducing, operating expenses, resulted in a reduction of net loss of Rs 116.1 crore for the first nine months of fiscal 2024 (net loss of Rs 281.5 crore during fiscal 2023). CRISIL Ratings believes optimisation of operating cost and ability to grow own-book portfolio is critical. Ability to achieve substantial operating efficiency in order to report profits will also remain key rating sensitivity factor.

 

• Modest resource profile

RCPL used to rely primarily on funds from the parent in the form of intercorporate loan. During fiscal 2020, the company gained access to bank borrowings and has improved its resource profile since then by raising funds from non-banking financial companies (NBFCs) and a few banks. The average cost of borrowing is 13.2%. Ability to further diversify lenders and funding avenues and raise funds at competitive rates remain monitorable.

Liquidity: Adequate

As on December 31, 2023, the Rupeek group had a comfortable asset-liability maturity profile with positive cumulative mismatches in the up to one year bucket. Unencumbered cash and equivalents stood at Rs 67.6 crore as on December 31, 2023. Liquidity at RCPL is supported by the availability of credit lines from the parent as and when required, and the short tenure of gold loans. Furthermore, the company has a policy of maintaining liquidity sufficient to cover six months of interest and principal obligations. As on December 31, 2023, RCPL had scheduled debt obligation of around Rs 70 crore till April 2024.

Outlook: Stable

CRISIL Ratings believes RCPL will continue to benefit from its healthy capitalisation and comfortable asset quality over the medium term.

Rating Sensitivity Factors

Upward factors:

• Ramp-up in operations resulting in profitability
• 90+dpd sustained below 4% over the medium term

 

Downward factors:

• Steady state gearing above 5 times or inability to raise capital to fund growth
• Any adverse movement in asset quality with 90+dpd (including write offs) beyond 5% on a sustained basis, thereby impacting earnings
• Inability to stem losses or delay in turning profitable

About the Group

Founded in August 2015, RFPL has developed an asset-backed online lending platform providing online gold loans through its model of doorstep pickup and release. The company provides online-based gold loan solutions in partnership with banks and NBFCs and its lending partnerships include Federal Bank, Indian Bank, Cholamandalam Investment and Finance Company Ltd, and Liquiloans. The company is operational in over 14 states and 63 cities.It started disbursing gold loans through its app, Rupeek, with the lending partner in January 2016.

 

RCPL is a wholly owned subsidiary of RFPL and acquired its NBFC licence in December 2017. RCPL  initially disbursed gold loans by itself, using the Rupeek platformand has subsequently  been scaling up the business since July 2019 in the form of unsecured top-up loans to gold loan customers of lending partners.and other colending partnerships.

Key Financial Indicators: Consolidated

As on/for the year ended March 31	Unit	Dec-2023*	2023	2022	2021
Total income	Rs crore	82.1	97.2	132.4	78.1
Total managed assets	Rs crore	1930.5	1945.3	2501.8	1985.3
PAT	Rs crore	-116.1	-281.5	-364.4	-160.7
90+ dpd@	%	0.3	0.8	2.9	0.1
Gearing	Times	0.7	0.6	0.5	0.2
Return on assets	%	(7.8)	(12.7)	(16.2)	(10.3)

*Provisional numbers

@Based on 90+dpd, however company follows 180+ dpd as NPA recognition in line with RBI regulations for non-systemic important NBFCs

Any other information: Not Applicable