| Sarvagram Fincare Private Limited | ||||
| Rating outlook revised to 'Positive'; Rating Reaffirmed | ||||
| 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 revised its outlook on the long term bank facilities and non convertible debentures of Sarvagram Fincare Private Limited (Sarvagram Fincare) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL BBB-’.
The revision in outlook reflects the group’s strengthened capital position supported by the recent equity infusion of Rs 283 crore in December 2022, scale up in the portfolio and the improvement in the earnings profile with the group reporting profits in the last couple of months. The ratings also continue to reflect the experience of promoters and top management in rural financing. These strengths are partially offset by limited track record of operations and inherent vulnerability of asset quality given the segment of operation.
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 79.7% of the total share capital (equity + CCPS) in the form of CCPS, while the equity capital is infused by the promoters.
CRISIL ratings has evaluated the consolidated credit and financial risk profile 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: Strong experience of promoters and management in rural financing The founders of Sarvagram, Mr Utpal Isser and Mr Sameer Mishra have significant relevant experience complementing the business model of the group. Both of them 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.
Comfortable capitalization metrics Capitalisation metrics for the group remain comfortable, supported by recent capital infusion. The group has raised around Rs 387 crores within 3 years of its operations at the parent level, with around 283 crores being raised in fiscal 2023. Pursuant to capital infusion, the networth of Sarvagram Solutions at consolidated level stood at Rs 354 crore as on March 31, 2023, as against Rs 95.8 crore as on March 31, 2022 and Rs 96.7 crore as on March 31, 2021. Of this, the parent has infused Rs 37 crore in the NBFC, i.e. Sarvagram Fincare Limited in fiscal 2023. Subsequently, Sarvagram Solutions has invested Rs 138 crores in the NBFC in April 2023. At standalone level, the company had a networth of Rs 73.3 crore as on March 31, 2023, as against Rs 51 crore as on March 31, 2022. The gearing metrics also remained comfortable at both consolidated and standalone level at 1 time (adjusted for goodwill) and 4.6 times, respectively, as on March 31, 2023.
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.
Substantial scale up of operations Given the nascent stage of operations, the assets under management (AUM) for the company grew to Rs 411 crore as on March 31, 2023, registering a 140% year-on-year growth. The company currently has five credit products under its portfolio, i.e. business loans (31%), farm loans (37%), personal loans (25%), home loans (4%) and gold loans (3%). 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 67 branches as on March 31, 2023, as compared to 50 as of March 31, 2022, primarily in the states of Gujarat and Maharashtra which constitute around 81% of the AUM as on March 31, 2023. The company plans to expand to other states as well as 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: Inherent vulnerability of asset quality given the segment of operation 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 the purpose of underwriting, Sarvagram Fincare considers the entire household income and expenses. In addition, the focus is also on secured lending. As of March 31, 2023, 66% 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 80% of the total portfolio.
With the modest scale of operations, the company has managed its collection efficiency[1] well, though the collection efficiency was slightly impacted during the moratorium period with efficiency ratio dropping to its lowest of 82% in May 2020, however the same has been improving since then. The group has been maintaining a healthy collection efficiency of 97-99% in fiscal 2023.Consequently, the asset quality metrics remained comfortable with 90+ dpd of 1.26% as on March 31, 2023, as against 1.33% as on March 31, 2022, and 1.10% as on March 31, 2021. On a 1-year lagged basis, the asset quality metrics stood at 3.04% as on March 31, 2023 compared to 5.65% as on March 31, 2022.
Nevertheless, with the scale up in the portfolio in the last 1 fiscal, 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.
Earnings profile constrained by high operating expenses The earnings profile is currently constrained amid high operating costs given the branch expansion and technological investments being undertaken given the nascent stage of operations. SarvaGram Fincare reported a loss of Rs. 14.4 crore for the period ending March 31, 2023, as against loss of Rs 21.2 crore for fiscal 2022. High employee costs and strengthening the technological layer formed the bulk of the operating expenses. However, the same has improved with reduction in the operating expenses to 15.0%as compared to 22.2% last year which supported the earnings profile of the company with the group turning profitable in the month of March.
Operating costs are expected to reduce over the medium term 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 supports earnings profile. The company is also planning to grow its off-book lending in near term.
On a month-on-month basis, the company has turned profitable in March 2023 having reported profits at Rs 10.6 lakhs at a consolidated level and Rs 5.2 lakhs at a standalone level. This trajectory of the improvement in the earnings profile is expected to continue going forward and the group is expected to achieve consistent quarterly level profits, which remains a key monitorable. [1]Collection efficiency = Total collections excluding prepayment divided by current billing |
Liquidity: Adequate Sarvagram Fincare’s asset-liability maturity profile is comfortable as on March 31, 2023 with positive mismatches across years. As on March 31, 2023, the company had cash and liquid investments and unutilized bank lines of Rs 49.17 crores, covering 3 months of debt repayments (principal + interest) from April-23 to June-23. |
Outlook: Positive CRISIL Ratings believes the company will benefit from its experienced promoters and management and will maintain its healthy capitalization metrics over the medium term. However, sustainable improvement in earnings profile remains a key monitorable. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company Sarvagram Fincare Private Limited (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, 2023, SSPL held 79.7% of ownership of SFPL.
Sarvagram Fincare currently has five credit products under its portfolio, i.e. business loans (31%), farm loans (37%), personal loans (25%), home loans (4%) and gold loans (3%). The company offer these credit products to semi-urban/rural households.
The company had an AUM of Rs 411 crore as on March 31, 2023 as compared to an AUM of Rs. 171 crore as on March 31, 2022. |
Key Financial Indicators: (Consolidated)
*All figures for Mar-23 are as per provisional financials
Key Financial Indicators (Standalone):
*All figures for Mar-23 are as per provisional financials |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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