| Sarvagram Fincare Private Limited | ||||
| Rating reaffirmed at 'CRISIL BBB-/Positive' | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the existing debt instruments and bank facilities of Sarvagram Fincare Private Limited (Sarvagram Fincare) at ‘CRISIL BBB-/Positive’.
The rating continues to reflect strong experience of promoters and top management in rural financing, group’s comfortable capital position, increasing scale up in the portfolio. These strengths are partially offset by inherent vulnerability of asset quality given the segment of operation and constrained, although improving, earnings profile.
Sarvagram Fincare was incorporated in October 2018 and started its operations in June 2019, as household finance company providing suitable credit products to rural households in rural and semi-urban India. The company is the associate company of Sarvagram Solutions Private Limited (Sarvagram Solutions), which was incorporated in August 2019, as a digital platform providing technology solutions to the NBFC arm. |
Analytical Approach Sarvagram Solutions being incorporated (August 2019) after its lending arm Sarvagram Fincare Private Limited (October 2018), currently holds ~80% of the total share capital in the form of equity, while the rest is infused by the promoters.
CRISIL Ratings has considered the consolidated business and financial risk profiles of the group i.e. Sarvagram Solutions and Sarvagram Fincare as there are significant operational and managerial linkages between the companies. Additionally, all the equity raises are done at the parent company i.e., Sarvagram Solutions, part of which is infused in Sarvagram Fincare.
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:
The founders of Sarvagram, Mr Utpal Isser and Mr Sameer Mishra have significant relevant experience complementing the business model of the group. Both have been involved in managing rural businesses across financial sector entities including banks. The management team too has strong experience in the rural finance business. Given their significant experience, the management is focused on putting in place sound systems and risk management processes at an early stage itself. The group has invested significantly in analytics capability, underwriting capabilities, and risk analytics. CRISIL Ratings believes that the experience of the promoters and management will stand Sarvagram in good stead as it scales up its portfolio.
Capitalisation metrics for the group remain comfortable, supported by timely capital infusion. The group has raised around Rs 400 crore within 3 years of its operations at the parent level. The networth of Sarvagram Solutions at consolidated level stood at Rs 324 crore as on March 31, 2024, as against Rs 326 crore as on March 31, 2023. Of this, the parent has infused Rs 138 crore in the NBFC, i.e. Sarvagram Fincare Limited in fiscal 2024. At standalone level, the company had a networth of Rs 214 crore as on March 31, 2024, as against Rs 69 crore as on March 31, 2023.
The gearing metrics also remained comfortable at both consolidated and standalone level at 2 times and 3 times, respectively, as on March 31, 2024. Capitalization metrics are expected to remain comfortable in the medium term with gearing metrics not expected to go beyond 3.5 times at consolidated level on a steady state basis.
The assets under management (AUM) for the company grew to Rs 942 crore as on March 31, 2024, registering a 129% year-on-year growth. The company currently has five credit products under its portfolio, i.e. business loans (35%), farm loans (35%), personal loans (25%), home loans (4%) and gold loans (1%). The company offer these credit products to rural households. The company follows brick and mortar business model for the purpose of its lead generation and currently has 124 branches as on March 31, 2024, as compared to 67 as of March 31, 2023, primarily operates in the states of Gujarat, Maharashtra, Karnataka, Rajasthan and Telangana. The company plans to increase their penetration in the existing locations which will fuel the future growth. Ability of the company to reduce the geographic concentration will be a key monitorable.
Weaknesses:
Given the significant experience of management, the management is focused on putting in place sound systems and risk management processes at an early stage itself. For underwriting, Sarvagram Fincare considers the entire household income and expenses. In addition, the focus is also on secured lending. As of March 31, 2024, 69% of the company’s AUM was secured by mortgage. Additionally, the company also secures it portfolio through stock hypothecation. Including the stock hypothecation, the secured portfolio would constitute 85% of the total portfolio.
The group has been maintaining a healthy collection efficiency of 96-99% in fiscal 2024. Consequently, the asset quality metrics remained comfortable, though has inched up, with 90+ dpd of 1.76% as on March 31, 2024, as against 1.26% as on March 31, 2023, On a 1-year lagged basis, the asset quality metrics stood at 4.04% as on March 31, 2024 compared to 3.05% as on March 31, 2023.
Nevertheless, with the scale up in the portfolio in the last one year, the portfolio lacks seasoning and the ability of the company to manage its asset quality as the portfolio scales up remains to be seen and would remain a key monitorable.
The earnings profile remains constrained amid high operating costs given the branch expansion and technological investments being undertaken. In fiscal 2024, the company opened around 60 branches. The operating expenses as a % of total managed assets have reduced to 11.4% in fiscal 2024, as against 13.8% in fiscal 2023, which supported the earnings profile of the company with the company turning profitable in the current fiscal. The company reported net profits of Rs. 7.6 crore on standalone basis, as against net losses of Rs 19.2 crore in fiscal 2023. At consolidated level, the group reported losses of Rs. 11.5 crore in fiscal 2024 as against losses of Rs. 34.1 crore in fiscal 2023. However, the group achieved breakeven in Q4 of fiscal 2024.
Operating costs are expected to remain high over the medium term as company plans to open 50 branches in fiscal 2025. Nevertheless, earnings profile would gradually benefit as the newly opened branches achieve scale, and employee costs normalise even as the company continues to increase its network. Furthermore, the high-yield portfolio with IRR ranging 20-30% across all segments should support earnings profile. Sustenance of improvement in the earnings profile shall remain a key monitorable. |
Liquidity: Adequate Sarvagram Fincare’s asset-liability maturity profile is comfortable as on March 31, 2024 with positive mismatches upto 1 year bucket. As on March 31, 2024, the company had cash and liquid investments and unutilized bank lines of Rs 57.33 crore, covering 2 months of debt repayments (principal + interest) from April-24 to May-24. |
Outlook: Positive CRISIL Ratings believes the company’s profitability should improve sustainably whilst maintaining healthy capitalization metrics. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SFPL is a Maharashtra-based non-deposit non-systemically important NBFC, which started its operations in June 2019 as household finance company providing suitable credit products to rural households in rural and semi-urban India. The company is the subsidiary of Sarvagram Solutions Private Limited (SSPL), which is a digital platform providing technology solutions to the NBFC arm. As on March 31, 2024, SSPL held ~80% of ownership of SFPL.
Sarvagram Fincare currently has five credit products under its portfolio, i.e. business loans (35%), farm loans (35%), personal loans (25%), home loans (4%) and gold loans (1%). The company offer these credit products to semi-urban/rural households.
The company had an AUM of Rs 942 crore as on March 31, 2024, as compared to an AUM of Rs. 411 crore as on March 31, 2023. |
Key Financial Indicators (Consolidated):
*All figures for Mar-24 are as per provisional financials
Key Financial Indicators (Standalone):
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
*Yet to be issued |
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 Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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