Detailed Rationale

Crisil Ratings has assigned its ‘Crisil BBB-/Stable’ rating to Rs 70 crore non-convertible debentures of Seeds Fincap Private Limited (Seeds Fincap). The rating on the bank loan facilities and other non-convertible debentures has been reaffirmed at 'Crisil BBB-/Stable'.

 

Crisil Rating has also withdrawn its ratings on non-convertible debentures of Rs 10 crore (see 'Annexure - Details of Rating Withdrawn' for details) on client’s request and on receipt of requisite documentation as these have been redeemed. The withdrawal is in line with the Crisil Ratings’ policy on withdrawal of ratings.

 

The rating continues to factor in adequate capital position, as the company has raised equity of Rs 72 crore during the last four quarters (Rs 40 crore in the first quarter of fiscal 2025, from institutional investors. Resultantly, networth rose to Rs 104.3 crore and on-book gearing improved to 3.3 times as on December 31, 2024, from Rs 64.7 crore and 4.7 times, respectively, as on March 31, 2024. Crisil Ratings believes Seeds Fincap has demonstrated its ability to raise sizable capital at a relatively early stage of operations. This capital should support its growth plans over the medium term.

 

The rating also continues to reflect an improvement in the earnings profile, as reflected in the company’s ability to report month-on-month profit (at profit before tax level) including the first nine months of fiscal 2025. This was primarily because most of the branches that have been operational for more than 12 months have started reporting profit. Nevertheless, as the company is on a growth and expansion mode, its ability to report higher profitability from the current level, is a key rating sensitivity factor.

 

The ratings continue to factor in the ramp-up in operations while maintaining asset quality and extensive experience of the promoters in the micro-lending sector. These strengths are partially offset by the modest, though improving, earnings and susceptibility to risks associated with the micro-lending segment.

Analytical Approach

Crisil Ratings has evaluated the standalone business and financial risk profile of Seeds Fincap

Key Rating Drivers & Detailed Description

Strengths:

Adequate capitalisation supported by regular infusions: The company is well-capitalised for its current scale of operations, backed by the ability of its promoters to raise capital at regular intervals. Seeds Fincap raised the first round of equity capital of Rs 32 crore and second round of Rs 40 crore from institutional investors in the second quarter of fiscal 2024 and first quarter of fiscal 2025, respectively. The networth as on December 31, 2024, stood at Rs 104.3 crore and on-book gearing of 3.3 times as against Rs 64.7 crore and 4.7 times, respectively, a year before, and Rs 36.96 crore and 4.0 times as on March 31, 2023. Ability to raise equity capital at regular intervals and maintain comfortable gearing will be monitorable.

 

Extensive experience of the promoters: The founders, Mr Subhash Chandra Acharya (Managing Director and Chief Executive Officer) and Mr Avishek Sarkar (Chief Risk Officer) have more than 15 years’ experience in the financial sector. Mr Acharya previously headed operations at Satya Microcapital Ltd and Mr Sarkar led the credit department at Satya Microcapital Ltd and was the vice-president (operations) at Satin Creditcare prior to that.

 

Comfortable asset quality with sound risk management practices: Asset quality is marked by gross non-performing assets (GNPA) of 1.02% as on December 31, 2024. Collection efficiency has been comfortable at 96.5-97.5%, with low delinquencies for loans originated in the past 8-9 months. The company has been able to control the incremental credit cost. As the portfolio is seasoning, 90+ dpd stood at 1.3% as on December 31, 2024, as against 0.5% as on March 31, 2024, this slight rise in delinquency is due to the untimely climatic changes and heat waves in multiple parts of northern India, which impacted the cash flow of rural borrowers.

 

The risk management systems and practices for Seeds Fincap has remained adequate, as the company expanded its reach to new markets and locations. This has also enabled the company to maintain its asset quality performance in existing regions. The company has extensive credit and risk teams, which do thorough cash flow analysis. It has assigned one credit officer for each branch to maintain portfolio quality.  Robust growth over the past two years was supported by adequate monitoring of operational parameters, such as calibrated increase in ticket size and assets under management (AUM) per branch.

 

Weaknesses:

Exposure to geographic concentration in portfolio: Seeds Fincap commenced operations only in April 2021 and its AUM crossed Rs 300 crore by fiscal 2024. The company started operations from Uttar Pradesh (UP), which forms 52.5% of the loan portfolio as on December 31, 2024. Also, as UP is the most populous state, it offers healthy business potential. The company has been expanding to other states such as Rajasthan (21.1%), Haryana (12.4%), Bihar (12.8%), Uttarakhand (1.9%), Madhya Pradesh (2.1%), Punjab (0.8%) and Gujarat (0.6%). While the company has been taking steps towards diversification, the higher geographic concentration increases susceptibility to local socio-political risks inherent in the micro-lending business. Hence, managing asset quality, along with portfolio growth and geographic diversity, is a key rating sensitivity factor. The ability to diversify operations and reduce geographic concentration is monitorable.

 

Modest, though improving, earnings: Seeds Fincap reported profit of Rs 0.03 crore and total interest income of Rs 58.2 crore in the first nine months of fiscal 2025, as against loss of Rs 3.6 crore and total interest income of Rs 48.01 crore during fiscal 2024. Return on managed assets (RoMA) is nil for the first nine months of fiscal 2025, as against negative 1.2% for fiscal 2024 and negative 2.5% for fiscal 2023. The net interest margin (NIM; calculated as net interest income /average managed assets) stood at just 8.3% (annualised) during the first nine months of fiscal 2025, due to high cost of borrowings from non-banking finance companies (NBFCs). Operating cost remained high at 13.9% during the first half of nine months of fiscal 2025, led by large human resource cost.

 

While the earnings profile remains modest and has recently shown profitability, the company has been profitable on a monthly basis since October 2023. Most of the branches which are operational for more than 12 months have started reporting profit on a monthly basis. Nevertheless, as the company is in the growth phase and has been enhancing its branch network, operating expenses were high at 13.9%. Ability to generate profit month-on-month and record full-year profitability is a key rating sensitivity factor. 

 

Susceptibility to potential socio-political risk: The micro lending space has witnessed two major disruptive events in the past decade — first, the ordinance promulgated by the Government of Andhra Pradesh (AP) in 2010, and second, demonetisation of high-value currency notes in 2016. In addition, the sector has faced issues of varying intensity in different markets. The ordinance on microfinance institutions (MFIs) by the AP government demonstrated their vulnerability to regulatory and legislative risk. It triggered a chain of events that adversely affected business models of MFIs by impairing their growth, asset quality, profitability and solvency. Similarly, the sector witnessed high delinquencies post-demonetisation and the subsequent socio-political events.

 

This indicates the fragility of the business model to external risks. As the business involves lending to a particular section of borrowers, MFIs will remain exposed to socially sensitive factors, such as high interest rates and consequently, tighter regulations. Seeds Fincap, nevertheless, is unlikely to face any direct impact as it does not operating as an MFI. While it operates in the micro-lending segment, it caters to individual borrowers with a higher income profile (vis-à-vis typical borrowers that MFIs cater to), and is thus, relatively better placed to managing risk. 

Liquidity: Adequate

As on March 15, 2025, the asset-liability maturity (ALM) profile was comfortable, with positive cumulative mismatches in the up to one-year bucket. Liquidity stood at Rs 21.8 crore (excluding the term loan), against principal repayment and interest outflow of Rs 65.1 crore for the next three months. This represents a liquidity cover of 1.08 times (assuming 75% collection efficiency) for debt obligation for one month through April 2025.

Outlook: Stable

Crisil Ratings believes Seeds Fincap will continue to benefit from the extensive experience of its promoters and management team in the micro-lending space. The company is also expected to maintain an adequate capital position and comfortable asset quality over the medium term.

Rating sensitivity factors

Upward factors:

• Substantial improvement in earnings, along with scale up in portfolio; ability to maintain RoMA over 1.5% on a steady-state basis
• Adequate capital position with gearing below 4 times on a steady-state basis

 

Downward factors

• Weaker asset quality, leading to increase in credit cost, thereby affecting the earnings
• Inability to maintain capital position with adjusted gearing exceeding 5.5 times

About the Company

Seeds Fincap is a non-deposit-taking NBFC, based in the National Capital Region (NCR). The Gurugram-based company aims to serve a million micro, small and medium enterprises (MSMEs) in India. It was founded on January 14, 2021, by Mr Subhash Acharya and Mr Avishek Sarkar. Both are seasoned professionals from the finance industry, each having 15-plus years of experience across NBFCs and rating agencies. They have created a quality portfolio in the MSME space with a proven record. The company commenced NBFC operations in April 2021, with initial capital contributed by the promoters and the management team. Lending will be the primary activity, with focus on underserved and unserved entrepreneurs across the country, with additional emphasis on Tier 2, 3 and 4 cities. The company aims to reach workers, youngsters and small entrepreneurs, for whom lack of access to formal credit curtails growth or leads to outright winding up of the business. AUM stood at Rs 398 crore as on December 31, 2024, as against Rs 326 crore as on March 31, 2023, and Rs 208 crore as on March 31, 2022 (reflecting year-on-year growth of about 57%). MSMEs formed 81% of the portfolio, while the microfinance sector accounted for the remaining 18%. As on December 31, 2024, the company had 128 operational branches across Haryana, Rajasthan, UP, Bihar, Punjab, Madhya Pradesh, Gujarat and Uttarakhand and catered to approximately 57,435 customers.

Any other information: Not Applicable