| Tattva Fincorp Limited | ||||
| Rating placed on 'Watch Negative' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has placed its rating on the long-term bank facility of Tattva Fincorp Limited (TFL) on 'Rating Watch with Negative Implications'. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has evaluated the standalone business and financial risk profiles of TFL. |
| Key Rating Drivers & Detailed Description |
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Strengths * Extensive experience of the management The key management personnel's experience in the lending space of about two decades, their understanding of the business and operating geography and ability to raise funds in early stage of operations should continue to support the business. Operations are spread across Kerala and Tamil Nadu with 9 branches, above 400 dealers, and around 9,000 clients. * Adequate capital position Networth and adjusted gearing were Rs 16.6 crore and 3.5 times, respectively, as on March 31, 2020, supported by regular capital infusion by the promoters. Promoters had infused Rs 4 crore in the form of equity capital over last 2 fiscals. Accordingly, capital adequacy ratio was comfortable at 34.9% as on March 31, 2020. In addition, networth coverage for net non-performing assets was comfortable at 14.2 times as on March 31, 2020. Gearing moderated to 3.5 times as on March 31, 2020, from 1.9 times as on March 31, 2018. TFL should raise equity in the foreseeable future, and subsequently, maintain steady gearing of 4-5 times over the medium term. Weaknesses * Short track record of operations with geographical concentration of portfolio TFL was established in March 1996, however current management took over the company in February 2017 and full-fledged operations commenced in April 2017. Company's loan portfolio comprises 95% two wheeler segment, 3% loan against property and 1% business loan with total assets under management (AUM) of Rs 64 crore as on March 31, 2020. Operations are spread across two states, with Kerala accounting for 87% of overall loan portfolio as on September 30, 2019. Company has completed one operating cycle in fiscal 2019, the good underwriting practices have helped asset quality to be maintained at minimum level with gross non-performing assets (NPAs) of 3.0% as on March 31, 2020 and 1.5% as on March 31, 2019. However, the ability to maintain asset quality with increase in scale of operations will remain a key rating monitorable. * Average earnings profile Profitability remains average with return on assets around 1% for the year ended March 31, 2020. Despite the high yielding portfolio, net profitability margin was negative due to higher operating and funding costs. The operating cost was marginally improved to 10.6% as on March 31, 2020 from 12.9% in fiscals 2019 (18% in fiscal 2018), however it will remain high because of expansion of branches and increased hiring over the medium term. Most of the incremental funding over the past eighteen months is from banks and non-banking finance companies (NBFCs) at relatively high cost of 13.0-15.75%. Also, considering the continuous high growth in loan assets, the ability to limit credit cost will be critical for profitability. |
| Liquidity Stretched |
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TFL's liquidity profile is stretched, considering asset-side collections will be negligible while liability-side outflows may continue as per schedule. The company's liquidity to cover total debt and loan repayments including operating expenses during May and June 2020 is less than 1 time. In the event of TFL not being able to have sufficient collections, their ability to repay borrowings would depend to a large extent on incremental fund raising through equity or loans. Herein, CRISIL notes that since April 20, 2020, TFL has managed to start operations at their branches in a calibrated manner. TFL has collected around Rs 95 lakhs in the month of April 2020 and Rs 1.67 crore in till May 20, 2020. The company's ability to bring the collections back on track and improve liquidity position will be monitored closely. |
| Rating Sensitivity factors |
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Upward factors * Ability to ramp up liquidity position and increase liquidity buffer * Significant improvement collections over the near term * Asset quality metrics to be maintained with 90+dpd remaining at 2-3% * Ability to scale up the loan book and enhance geographic diversity Downward factors * No material improvement in the liquidity position from present level * Any adverse movement in asset quality with 90+dpd increasing beyond 10% and earnings profile of the company getting impacted * Stress on capitalisation metrics with any significant jump in gearing while scaling up the portfolio |
| About the Company |
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TFL is a Kerala-based asset financing non-deposit taking NBFC, promoted by a group of senior bankers. On February 14, 2017, the new management took control by acquiring the entire shareholding of the past members, with prior approval of the Reserve Bank of India. The company's name has been changed from ESAF Enterprise Development Finance Ltd to Tattva Fincorp Ltd. TFL started its full-fledged operations in April 2017. |
| Key Financial Indicators | ||||||||||||||||||||||||||||||||||||||||
^Provisional numbers |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | |||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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| Links to related criteria |
| CRISILs Bank Loan Ratings - process, scale and default recognition |
| Rating Criteria for Finance Companies |
| For further information contact: | ||||||
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