Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL BBB/Stable’ rating to the Rs 50 crore  non-convertible debentures (NCDs) of WheelsEMI Private Limited (WEPL) and reaffirmed its ratings on the existing  debt instruments and bank facilities at 'CRISIL BBB/Stable/CRISIL A2'.

 

The ratings continue to factor in significant experience of the promoters and top management in the two-wheeler and two-wheeler finance industry and company’s comfortable capitalization metrics. These rating strengths are partially offset by asset quality risks inherent in two-wheeler financing and modest earnings profile.

Analytical Approach

CRISIL Ratings has considered the consolidated business and financial risk profiles of WEPL and its subsidiary Blubird Auto Trade Limited (Blubird) because of 100% ownership of Blubird by WEPL.

 

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:

• Significant experience of the promoters and senior management in the two-wheeler and two-wheeler finance industry

The founders of WEPL have over 30 years’ experience in the two-wheeler and two-wheeler finance industry and were part of one of the leading companies in this segment. The top management also has extensive experience in handling various functions in similar businesses including collections, backend operations, credit, legal, treasury and finance. 

 

Given their significant experience, the management of WEPL has been able to put in place strong systems and risk management processes at an early stage itself. The credit approval for it is centralized. The operational risk aspect has been minimized through IT systems as all the deviation approvals and disbursals are automated and done through centralized system. The management is also focused on building good governance systems. It has an experienced Board with two independent directors and has appointed reputed auditors.

 

CRISIL Ratings believes that the experience of the promoters and management will stand WEPL in good stead as it scales up its portfolio.

 

• Comfortable capitalization metrics

The company has demonstrated its ability to raise capital from varied investors including PE funds, international institutions and HNI investors. WEPL has raised close to Rs 480 crores since inception, of which Rs 225 crores (Rs 215 crore - net of issue expense) was infused in fiscal 2023. It reported net worth (including preference share capital) of Rs 265 crore as on June 30, 2024, with an on-book gearing of 2.0 times. On a steady state basis, the gearing of the company is expected to be under 4.0 times. The capital adequacy ratio also stood comfortable at 30.9% as on June 30, 2024.

 

The consolidated net worth as on March 31, 2024 stood at Rs 242 crore (Rs 256 crore as on March 31, 2023). Capital profile is expected to remain comfortable by timely fund raises.

 

Weaknesses:

• Asset quality susceptible to risks inherent in two-wheeler financing

WEPL’s asset quality is susceptible to risks associated with financing of two-wheelers wherein the borrower credit profiles could be relatively weak.  

 

The 90+ dpd for the company has recently witnessed an uptick to around 5.4% as on March 31, 2024, from 3.6% as on March 31, 2023. However, part of it is owing to the impact of revised IRAC norms of RBI for NPA recognition. The 90+ dpd remained stable at 5.4% as on June 30, 2024. Also, there were delinquencies in select locations in the new two wheeler segment, whereby the management has taken measures to mitigate the challenges and also lower the LTVs offered. Further, the company has also strengthened its collection teams.

 

Adjusted for 12-month write-offs, the 90+ dpd stood at 5.7% (annualized) as on June 30, 2024 (7.1% as on March 31, 2024). The adjusted collection efficiencies[1] were in the range of 97-104% during fiscal 2024. 

 

Going forward, the company plans to increase focus on customer segments where the vehicle is used for income generating activities. The company is currently focused on rural geographies for new two-wheelers. The ability of the company to contain delinquencies within manageable levels over the longer term will remain a key monitorable.

 

• Modest earnings profile

WEPL reported net profits of Rs 60 lakhs in fiscal 2024 as against losses of Rs 36 crore reported in fiscal 2023. This improvement majorly stems from benefits of scale achieved after consistent growth in the assets under management (AUM) at 4 year CAGR of 51.6% to Rs 1,316 crore as on March 31, 2024, which further increased to Rs 1,375 crore as on June 30, 2024 supported by co-lending arrangements with partner institutions at competitive costs. As a result, the total income (net of interest expense) to AUM improved from 16.1% in fiscal 2023 to 18.3% in fiscal 2024 and operating expense to AUM ratio improved from 18.7% in fiscal 2023 to 15.1% in fiscal 2024.

 

While there was overall improvement in profitability in fiscal 2024, nevertheless it was partially impacted by steep increase in credit costs resulting from transition to ECL based provisioning under Ind AS regime. The provisioning coverage ratio increased from 20% as on March 31, 2023 to 34% as on March 31, 2024. As a result, Credit cost to average AUM also increased from 1.9% in fiscal 2023 to 3.2% in fiscal 2024.

 

In first quarter of fiscal 2025, company continued to report profit with net profit at Rs. 27 lakhs. The total income (net of interest expense) to AUM and operating expense to AUM ratio stood at 14.8% and 12.1% (annualized) for Q1-FY25.

 

Going forward, while the high-yield portfolio with IRR ranging between 22-28% will support the earnings profile, resource raising at competitive costs even in terms of on-book funding will be important. Given the current capabilities and manpower set up in place and no material increase in fixed operating costs envisaged, CRISIL Ratings expects the operating profitability to improve. As the profitability still remains sub-optimal at the breakeven levels, the company’s ability to also manage its credit costs and improve its overall earnings profile while scaling up further will remain a key monitorable.

[1] Collection Efficiency = Total Collections including Overdues (excluding Prepayments) / Scheduled Billing for the month 

Liquidity: Adequate

WEPL had positive cumulative mismatches across all the buckets as per ALM statement as on June 30, 2024. In terms of liquidity, as on June 30, 2024, the company had available liquid lines including NCD’s were of Rs 118.2 crore, as against debt obligations of Rs 126.4 crore till August 2024.

Outlook: Stable

CRISIL Ratings expects the company to continue to sustain the improvement in earnings profile whilst maintaining healthy capitalization levels.

Rating Sensitivity factors

Upward factors:

• Increase in scale of operations while significantly improving the operating expense absorption and hence, overall earnings
• Sustainability in gross NPA level below 6% in the medium term.

 

Downward factors:

• Continued underperformance vis-à-vis expected profitability in the near term
• Increase in steady state gearing of above 4 times.
• Continued pressure on asset quality and credit costs

About the Company

WEPL is a non-deposit taking systemically important and base layer NBFC under scale based regulations, engaged in financing of used and new two-wheelers, electric two-wheelers and also offers re-finance for Vehicles. WEPL started its operations in April 2017 in Pune after its promoters (Mr. Srinivas Kantheti and Mr. Karunakaran Vaddakkepet) acquired an erstwhile NBFC (Varadnarayan Savings and Investment Co. Pvt. Ltd.). WEPL is currently operating with 14 branches & 300+ locations and has a presence in 12 states. 

 

As of March 31, 2024, about 54% of the AUM is composed of new two-wheeler financing largely in rural areas, 33% is used two-wheeler financing (including refinance), and balance 13% is the Electric Vehicle (EV) financing. The company is actively tapping growth opportunities in the EV segment.

 

About Blubird Auto Trade

Blubird Auto Trade, commercially known as BikeBazaar Marketplace, started operations in April 2019. The Company is wholly owned subsidiary of WheelsEMI Private Limited. The Company is engaged in trading and dealing of pre-owned two wheelers, leasing of electric vehicles and allied activities. As on March 31, 2024, the Company has presence in 2 states.

Key Financial Indicators: WEPL Standalone

Particulars as on/ for the year ended,	Unit	June 30, 2024	March 31, 2024	March 31, 2023	March 31, 2022
		IND-AS	IND-AS	IND-AS Restated	I GAAP
Total Assets	Rs crore	866	822	622	559
Assets under Management	Rs crore	1375	1315	929	664
Total Income (after finance cost)	Rs crore	66	253	183	80
Profit after tax	Rs crore	0.3	0.6	-36	-44
Gross NPA/ 90+ DPD	%	5.4	5.4	3.6	4.6
On-book Gearing	Times	2.0	1.8	1.1	3.8
Return on managed assets	%	0.1	0.1	NEG	NEG

NEG: Negative

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity of instruments	Rating assigned  with outlook
INE367Y07129	Debenture	10-Mar-2022	14.50%	10-Sep-2024	10	Complex	CRISIL BBB/Stable
INE367Y07103#	Debenture	03-Nov-2021	14.50%	30-Jun-2024	20	Complex	CRISIL BBB/Stable
NA	Debenture^	NA	NA	NA	8.5	Simple	CRISIL BBB/Stable
NA	Debenture^	NA	NA	NA	50	Simple	CRISIL BBB/Stable
NA	Commercial Paper	NA	NA	NA	40	Simple	CRISIL A2
NA	Proposed Long Term Bank Loan Facility*	NA	NA	NA	98	NA	CRISIL BBB/Stable
NA	Overdraft Facility	NA	NA	NA	2.0	NA	CRISIL A2

^yet to be issued

*Interchangeable with short term facility

#CRISIL Ratings has received an intimation from the issuer on the redemption of this instrument (INE367Y07103) and is awaiting independent confirmation before withdrawal of rating on this instrument.

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
WheelsEMI Private Limited	Full	Parent company
BluBird Auto Trade Private Limited	Full	Subsidiary