| Vruksha Microfin Private Limited | ||||
| 'CRISIL BB-/Stable' assigned to Bank Debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL BB-/Stable’ rating to the long-term bank facility of Vruksha Microfin Pvt Ltd (Vruksha Microfin).
The rating reflects extensive experience of the promoter and adequate capital position of Vruksha Microfin. These strengths are partially offset by modest scale of operations, with short track record, and susceptibility to potential risk from socio-political issues in the microfinance sector and inherently modest credit risk profile of the borrowers.
Vruksha Microfin was incorporated in August 2020 and started operations in August 2021. It provides microcredit to women borrowers in Tamil Nadu. Capital metrics are comfortable, supported by capital infusion. Total paid-up capital is Rs 9.7 crore as of June 30, 2022 - initial equity capital of Rs 5.1 crore was raised in fiscal 2021 and second round of equity worth Rs 4.6 crore in October 2021.
Given the initial stage of operations, loan portfolio for Vruksha Microfin was modest at Rs 19.4 crore as on June 30, 2022. The company offers microcredit facility of Rs 30,000 per borrower to women under the joint liability group (JLG) model, currently operating via seven branches in Tiruchirappalli, Thanjavur, Thiruvarur and Mayiladuthurai districts of Tamil Nadu. Vruksha Microfin has received credit line against own fixed deposit kept with the bank. Nevertheless, low gearing provides sufficient headroom for growing the portfolio through external debt.
The earnings profile is currently moderate amid high operating costs given the branch expansion and technological investments being undertaken owing to the initial stage of operations. Vruksha Microfin reported a profit of Rs 29 lakh for the first quarter of fiscal 2023. High employee costs formed the bulk of operating expenses. 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. As the portfolio scales up and gearing increases, ability to raise resources at competitive costs will be important. Additionally, ability to manage asset quality, and therefore, credit costs will be a key determinant of profitability over the medium term. |
Analytical Approach CRISIL Ratings has evaluated the standalone business and financial risk profiles of Vruksha Microfin |
Key Rating Drivers & Detailed Description Strengths: Extensive experience of promoter The board of Vruksha Microfin comprises experienced professionals, Chartered Accountants by profession. The managing director, Mr R S Gowdhaman and executive director, Mr G Velu both have vast experience of over 15 years in the microfinance sector. Other directors have experience in auditing many microfinance branches of other financial institutions and worked with non-banking finance companies (NBFCs) having exposure in the microfinance segment. Given its extensive experience, the management focuses on putting in place adequate systems and risk management processes at an early stage itself. For underwriting purpose, Vruksha Microfin is doing local surveys of area where they operate, focusing on regions with low nonperforming portfolios. Experience of the management will continue to support the business risk profile.
Adequate capital position Capital position is healthy, supported by capital infusions. The company raised around Rs 9.7 crore within one year of its operations, with Rs 4.6 crore being raised in October 2021. Pursuant to capital infusion, networth stood at Rs 10.4 crore as on June 30, 2022, as against Rs 5.17 crore as on March 31, 2021. Given the small scale of operations, the capital position is adequate for the current and planned scale of operations, with gearing of 1.4 times as on June 30, 2022.
Capitalisation metrics should remain comfortable over the medium term, with gearing not expected to go beyond 5 times.
Weakness: Modest scale of operations with short track record Given the initial stage of operations, loan portfolio was modest at Rs 19.4 crore as on June 30, 2022. The company currently has JLG loan portfolio in Tiruchirappalli, Thanjavur, Thiruvarur, and Mayiladuthurai. Vruksha Microfin was incorporated on August 22, 2020 after receiving license from Reserve Bank of India (RBI) and started its microfinance operations in August 2021. It provides loan facility to women borrowers for income-generation activities and agriculture & allied activities. First disbursement was done in August 2021; hence, asset quality needs to be monitored. The company has disbursed a total of Rs 31.8 crore till June 30, 2022 with an average monthly disbursement of around Rs 2.9 crore. Company has managed to maintain 100% collections till date. Nevertheless, with just one year of operations, 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 continue to be a key monitorable.
Susceptibility to potential risks from legislative and regulatory changes in microfinance sector and inherently modest credit risk profile of borrowers The microfinance sector witnessed two major disruptive events in the past decade. The first was the crisis promulgated by the ordinance passed by the government of Andhra Pradesh in 2010 and the second was demonetisation in 2016. Promulgation of the ordinance on microfinance institutions (MFIs) by the government of Andhra Pradesh in 2010 demonstrated their vulnerability to regulatory and legislative risks. The ordinance triggered a chain of events that adversely affected the business models of MFIs by impairing their growth, asset quality, profitability and solvency. The sector witnessed high levels of delinquencies post demonetisation and subsequent socio-political events. The MFI Bill, 2020 passed recently by the Assam Assembly may increase asset-quality challenges for players in the sector. Additionally, any loan waivers announced will make matters worse due to their impact on repayment discipline. Further, the sector remains susceptible to issues such as local elections, natural calamities and borrower protests among others, which may result in momentary spurt in delinquencies. This indicates the fragility of the business model to external risks. As the business involves lending to the poor and downtrodden sections of the society, MFIs will remain exposed to socially sensitive factors, including high interest rates, tighter regulations and legislation. |
Liquidity: Adequate Vruksha Microfin has a cash and cash equivalent Rs 0.14 crore as of June 30, 2022 and an additional Rs 0.5 crore placed in FD with Indian Overseas Bank while repayment obligations for next 3 months are Rs 0.84 crore including operating expenses. Considering 75% collections, the total liquidity position is adequate with Rs 6.3 crore, which corresponds to a liquidity cover of 7.5 times till August 2022. |
Outlook: Stable Vruksha Microfin will continue to benefit from its experienced management and adequate capitalisation metrics. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Vruksha Microfin, incorporated in August 2020, is a Tamil Nadu-based NBFC, promoted by a group of professionals. The company started its operations after receiving the NBFC licence from RBI in August 2021. Vruksha Microfin offers microcredit facility of Rs 30,000 per borrower to women under the JLG model, currently operating with seven branches in Tamil Nadu. The company has provided loans to over 10,000 borrowers in one year of disbursements and loan portfolio is reported at Rs 19.4 crore as on June 30, 2022. |
Key Financial Indicators
^Annualised |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 12-Aug-2022 in line with the lender-wise facility details as on 11-Aug-2022 received from the rated entity.
Criteria Details
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