| Seeds Fincap Private Limited | ||||||
| Rating upgraded to 'CRISIL BBB-/Stable'; 'CRISIL BBB-/Stable' assigned to Bank Debt | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 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 upgraded its rating on the non convertible debentures of Seeds Fincap Private Limited (Seeds Fincap) to 'CRISIL BBB-/Stable' from 'CRISIL BB+/Positive' and assigned its 'CRISIL BBB-/Stable' rating to the bank loan facilities.
The upgrade factors in substantial improvement in the 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 104.8 crore and on-book gearing improved to 2.5 times as on June 30, 2024, from Rs 64.7 crore and 4.7 times, respectively, as on March 31, 2024. Another round of infusion is likely by the end of fiscal 2025. 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 reflects an improvement in the earnings profile, as reflected in the company’s ability to report month-on-month profit (at profit before tax level) for nine consecutive months. including the first quarter of fiscal 2025. This was primarily because most of the branches that have been operational for more than 12 months have started reporting profit. As on June 30, 2024, the company had 90 branches, of which around 39% have become profitable. 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. This led to networth of Rs 104.8 crore and on-book gearing of 2.5 times as on June 30, 2024, 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. Seeds Fincap aims to expand its branch network to build a portfolio of over Rs 500 crore in the next one year, as projected by the management. 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 experience of more than 15 years 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 90+ dues per day (dpd) of 1.0% as on June 30, 2024. Collection efficiency has been comfortable at 98-99%, 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 1.0% as on June 30, 2024, as against 0.5% as on March 31, 2024, this slight rise in delinquency is due to the untimely climatic changes and heavy rainfalls in parts of northern India, which impacted the cash flow of rural borrowers. However, with the onset of the festive season in the second half of the year, the situation is expected to improve. Also, debt waiver campaigns have posed asset quality challenges in certain pockets, especially in Punjab and Haryana. These states formed around 13% of the loan book of Seeds Fincap (Haryana: 12.3% and Punjab: 0.6%).
Seeds Fincap has developed adequate risk management systems and practices over the past two years, as it expanded its reach to new markets. This has enabled the company to maintain its asset quality performance in existing regions. The company has extensive credit and risk teams, which do a 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 54.4% of the loan portfolio as on June 30, 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 (18.8%), Haryana (12.3%), Bihar (11.4%), Uttarakhand (1.8%), Madhya Pradesh (0.7%), Punjab (0.6%) and Gujarat (0.01%). With regard to district level concentration, the top five districts formed 28.2% of the AUM as of June 2024. 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. Ability to diversify operations and reduce geographic concentration is monitorable.
Modest, though improving, earnings Seeds Fincap reported profit of Rs 0.3 crore and total interest income of Rs 21.7 crore in the first quarter of fiscal 2025, as against loss of Rs 1.7 crore and total interest income of Rs 10.7 crore during the first quarter of fiscal 2024. Return on managed assets (RoMA) was positive at 0.3% (annualised) for the first quarter 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) rose to 12.7% (annualised) during the first quarter of fiscal 2024, after being constrained at 6-10% during the past two fiscals, due to high cost of borrowings from non-banking finance companies (NBFCs). Improvement in NIM is driven by increase in interest income, post rise in disbursements after the capital infusion. Seeds Fincap has disbursed Rs 295 crores during fiscal 2024 out of which Rs 149.55 crore was disbursed during quarter four of fiscal 2024 itself , which is the highest since inception. Operating cost remained high at 14.4% during the first quarter 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. Out of 45 branches, 35 were profitable as on June 30, 2024. Nevertheless, as the company is in the growth phase and has been enhancing its branch network, operating expenses were high at 14.4%. 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 June 30, 2024, the asset-liability maturity (ALM) profile was comfortable, with positive cumulative mismatches in the up to one-year bucket. Liquidity stood at Rs 57.89 crore (excluding the term loan), against principal repayment and interest outflow of Rs 73.75 crore for the next three months. This represents a liquidity cover of 1.4 times (assuming 75% collection efficiency) for debt obligation over the three months through September 2024. |
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:
Downward factors
|
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 331 crore as on June 30, 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 June 30, 2024, the company had 90 operational branches across Haryana, Rajasthan, UP, Bihar, Punjab, Madhya Pradesh, Gujarat and Uttarakhand and catered to approximately 51,860 customers. |
Key Financial Indicators
|
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
|
Criteria Details
|