Tag: rating

Namdev Finvest eyes eight-fold AUM growth by March 2024

Banking & Finance

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Namdev Finvest Pvt Ltd (NFPL) is eyeing an eight-fold increase in its assets under management (AUM), to touch at least ₹2,000 crore, by March-end 2024 even as it expects the recent $4.7-million fund raise to lead to a rating upgrade.

Once the Jaipur-based non-banking finance company (NBFC) — which is focused on the micro, small and medium enterprises (MSME) sector — attains the targeted AUM, it will be better placed for co-lending tie-ups with large banks, its top officials said. Its current AUM value is about ₹270 crore.

Jitendra Tanwar, MD and CEO, said the company’s USP is providing funding on time to existing as well as new entrepreneurs in the MSME segment.

NBFCs: No need to press the panic button yet

“Our turnaround time is 7-10 days. So, within 10 days we disburse money to the customer.

“We also educate our customers about the importance of using banking facilities, as far as possible, avoid cash transactions, and route payments through digital payment apps,” he said.

Tanwar said NFPL encourages those at the bottom of the pyramid to start their business and grow it.

According to CARE Ratings, the NBFC’s loan portfolio is moderately diversified with the ‘loan against property’ portfolio and SME loans (secured) comprising 80 per cent, two-wheeler loans 16 per cent, new or used four-wheeler loans 3 per cent and gold loans 1 per cent.

NBFC regulation needs to be strengthened

NFPL received private equity investment (A series) of around $4.7 million in September 2021 from Belgium-based Incofin Investment Management, via its India Progress Fund.

The company, which has operations in Rajasthan, Punjab, Delhi and Gujarat, expects CARE Ratings to take into account the capital infusion when it updates its rating, which is currently at ‘BBB-’. An ‘A’ rating will help NFPL tap the debt capital market, said a company official.

On the importance of reaching the ₹2,000-crore milestone, PH Ravikumar, Director, said that co-lending becomes meaningful when there is a minimum monthly loan origination.

“When it comes to microfinance or MSMEs, the ability of specialised NBFCs like Namdev Finvest to spot, manage and contain the risk is much better than that of large banks. NBFCs have the skill sets, local focus, and local intelligence,” he said.

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S&P upgrades Manappuram Finance’s credit rating to ‘BB-’

Banking & Finance

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S&P Global Ratings has upgraded its long-term issuer credit rating for Manappuram Finance Ltd to ‘BB-’ from ‘B+’ as it expects the company to perform better than its non-banking finance company (NBFC) peers over the next 12 months.

This would be reflected in the company’s lower credit costs, above-average profitability, and strong capitalisation, the credit rating agency said in a statement.

S&P said the outlook is stable, reflecting its view that the company will largely maintain its financial profile over the next 12 months, supported by improved economic conditions in India.

The agency also affirmed the ‘B’ short-term issuer credit rating for the NBFC.

“Manappuram’s gold-based lending model with a three-month tenor allows it to recognise asset quality stress early,” the agency said.

S&P underscored that it could downgrade Manappuram if the company’s credit costs increase substantially, particularly in microfinance loans.

“We see limited rating upside for Manappuram over the next 12 months. We would upgrade the company if we believe its funding profile has become more stable,” it said.

Gold auctions

S&P observed that gold prices had fallen significantly till April 2021, from a peak in August 2020.

What’s next for gold loans after the pandemic?

“The stress in the economy owing to the second wave of Covid-19 infections during April-June 2021 and the decline in gold prices led to increased auctions of higher loan-to-value (LTV) loans in the first quarter of fiscal 2022 (ending March 31, 2022).

“The company’s gold auctions are likely to gradually return to their normal level as economic conditions improve,” S&P said.

The rise in auctions have, in part, lowered Manappuram’s average LTV ratio to about 65 per cent as of June 30, 2021, from about 71 per cent as of end-March 2021, providing the company some buffer to absorb price fluctuations, S&P said.

Banks may set up central repository to tackle gold loan frauds

The agency observed that gold price movements play an important role in the cushion available to lenders like Manappuram, which is predominantly in the collateral-based gold lending business.

Gold loans account for close to 70 per cent of the company’s total loans, with microfinance loans accounting for about 25 per cent, and vehicle finance and affordable housing contributing much of the rest.

Non-gold portfolio

S&P noted that stress will likely remain high in Manappuram’s non-gold portfolio, especially in the microfinance business.

“The asset quality of the non-gold loan portfolio has deteriorated sharply over the past two years.

“However, billing and collection efficiency are increasing close to pre-Covid-19 levels, hinting at improving asset quality trends,” the agency said.

Also, the company has pre-provisioned for the microfinance business. Therefore, S&P believes any residual impact can be largely absorbed by the company’s earnings.

The agency has forecast that Manappuram’s risk-adjusted capital ratio will stay above 30 per cent over the next 12 months.

“The company’s core earnings are likely to remain at more than 5 per cent of its average managed assets during this period. This ratio is one of the highest among rated peers.

“Manappuram’s funding profile is also improving with a shift toward longer tenor debt. However, the company still has material exposure to short-term wholesale funding,” S&P said.

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Should you invest in Hawkins Cooker FD opening for booking on September 15?

Personal Finance

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With interest rates bottoming out, fixed income investors have been scouting for options with higher returns. But higher returns invariably mean higher risk. Consider the case of the FD scheme of Hawkins Cookers. The company is offering 7.5 per cent per annum for deposits with a tenure of 12 months. For deposits of 24 and 36 months, the rates offered are 7.75 per cent and 8 per cent per annum, respectively. These rates are higher than many others in the market today.

But the flipside is that FDs of Hawkins are rated ‘MAA’/Stable rating by ICRA. While this rating implies high credit quality and low credit risk, it is a couple of notches below the highest rating of ‘MAAA’ — indicating that the Hawkins deposit has higher risk than the safest deposits in the market today.

Investors who can take such higher risk for higher returns can consider the FD scheme of Hawkins that opens on Wednesday, September 15, 2021. Interested investors should note that they should pre-register for the FDs on the company’s website (https://www.hawkinscookers.com/fd2021.aspx), beginning 9:30 am. Once you register, you will get a pre-acceptance number and the payment has to be made within 10 days, with a filled in FD application form. If the pre-accepted numbers cross the threshold amount (₹28.17 crore) which the company intends to raise through FDs, you will be put on a wait-list. Wait-listed applications will be considered if pre-approved applicants fail to pay within the stipulated time.

At the current juncture, locking into deposits with longer tenures could mean missing out on higher returns when the rate cycle begins to move up. A one- to two-year time-frame hence, seems better, as this could perhaps give the opportunity to reinvest at higher rates later on.

Why FD investors get the short end of the stick under waterfall mechanism

The company accepts a minimum of ₹25,000 as deposit and in multiples of ₹1,000 thereafter — up to a maximum of ₹20 lakh. Investors can choose from the cumulative and non-cumulative options. Under the former, interest will be compounded at monthly rests and paid on maturity, along with the principal. A deposit of ₹25,000 will fetch ₹26,941/ 29,177/31,756, at maturity, for tenures of 12/24/36 months, respectively. For non-cumulative deposits, interest will be paid out on half-yearly basis.

Given the relatively higher risk, it is recommended that investors restrict their investments to the minimum amount. Also, it will suit those with a bigger investible surplus on hand as they can park only a portion of their surplus here.

Better rates than others

The interest rates offered by Hawkins are relatively higher across tenures. For a 12-month deposit, while public sector banks offer 4.25-5.15 per cent, private banks offer up to 6 per cent, and small finance banks (SFBs) offer up to 6.5 per cent — Hawkins offers 7.5 per cent. For tenures of 24/36 months, banks currently offer up to 7 per cent, while Hawkins offers 7.75 and 8 per cent, respectively.

But the relatively lower rates offered by banks on their deposits are commensurate with their relatively higher safety. FDs with banks (including those with SFBs) are covered under the deposit insurance offered by DICGC, for up to ₹5 lakh per bank. This cover is not available for corporate FDs such as those of Hawkins.

The rates offered by Hawkins are 150 to 220 basis points higher than those offered by NBFCs, such as Bajaj Finance and Sundaram Finance. But these deposits have a higher credit rating (AAA), indicating better safety.

Even among its peers with about similar rating, the rates offered by Hawkins score better. For instance, Shriram Transport Finance’s deposits, rated MAA+ by ICRA (also rated FAAA by CRISIL), offer 6.5/6.75/7.5 per cent per annum and tenures of 12/24/36 months, respectively. JK Paper has a similar rating (‘FAA’/Stable by CRISIL), but the interest rates offered by it are 50-75 basis points lower than those offered by Hawkins, across tenures.

About the company

Hawkins is one of the leading manufacturers of pressure cookers in India with a wide distribution network (the brand has second highest market share of 34.9 per cent). The company has also diversified its product portfolio into other cookware products that constitute about 20 per cent of its turnover.

However, Hawkins is a small company, both in terms of turnover and market capitalisation (₹3,281 crore).

While the company’s revenue grew by 10.3 per cent compounded annual growth rate (CAGR) over FY16 to FY19, the growth was muted in FY20 — 3.2 per cent (y-o-y) to ₹674 crore, owing to the Covid-19 lockdown restrictions in March quarter. In FY21, however, with the company upping its online presence, sales saw a re-bound and grew by 14 per cent (y-o-y) to ₹768 crore.

Net profit grew by 14.5 per cent CAGR over FY16 to FY21 to ₹80.6 crore.

Hawkins plans to meet its working capital requirements from this FD scheme, apart from using the money as a buffer for any unforeseen exigencies. The company has unencumbered cash and liquid investments of ₹167 crore in FY21 compared to ₹48.5 crore as of March 31, 2020, owing to shorter debtor turnover days during the year (revised policy in FY21). Besides, as per ICRA’s rating rationale, the company also has largely unutilised working capital limits, which provide a liquidity cushion.

The company is net-debt free, and its debt to equity ratio is healthy at 0.13 times as of March 2021.

All you wanted to know about NRI bank fixed deposits

While the lockdowns initially impacted the sale of its products, the WFH scenario has helped boost their demand, thereafter. In the recent June quarter, the company’s top line soared by 50 per cent over the year ago period to ₹151.45 crore. Besides, while continuing fixed costs despite abysmal sale volumes and rising input prices dented its profits last year, the company raised prices by 5-10 per cent this year. Following the price rise and sales getting back to normal, its net profits inched up to ₹17.13 crore during June 2021 quarter, compared to ₹6.45 crore in the corresponding quarter last year.

Conservative investors who prefer full safety of capital over returns may avoid this offer, given its lower credit rating and the unsecured nature of the deposits.

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Indiabulls Housing Finance expects rating upgrade

Banking & Finance

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Indiabulls Housing Finance Ltd (IBHFL) said its next target on the ratings’ front is to get an upgrade to ‘AA+’ from its current rating of ‘AA’ (stable outlook) to make the most of the macro-opportunity and to grow profitability.

In its annual report, IBHFL referred to rating agency Crisil revising its rating outlook to ‘AA’ (stable outlook) on March 31, 2021 from ‘AA’ (negative outlook).

This came on the back of the company’s success in raising equity capital during the current tough global macro-economic situation, it added.

According to Crisil, instruments with ‘AA’ rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

Further,“+” or “-” suffix to a rating reflects comparative standing within a rating category.

As per the company’s past experiences, in times of macro-economic stress, whenever it has done an equity capital raise, even when capital adequacy was high – the company’s ratings were either upgraded or the rating outlook changed positively within a short period, the report said.

Capital raise

“The company believes that a capital raise aggregating up to $275 million…[approximately 12.5 per cent post issue diluted share capital of the company, assuming full conversion of existing Foreign Currency Convertible Bonds/FCCBs] would set its ratings on an upward trajectory and help it get its rating upgrade to AA+ much sooner than would be the case otherwise,” the report said.

IBHFL is seeking shareholders approval for issuance of securities of the company through Qualified Institutions Placement (QIP) and/or FCCBs and/or any other permissible modes aggregating up to $275 million or its equivalent in Indian rupees or in any other currency(ies).

In FY 2020-21, the company raised a total of ₹3,773 crores of regulatory equity capital + quasi-equity capital: ₹683 crore QIP issuance, ₹1,103 crore of FCCB issuance, and also accrued ₹1,987 crore by selling bulk of its investment in OakNorth Bank.

The annual report said an upgrade to ‘AA+’ rating opens up large pools of capital from institutions/companies such as insurance companies and pension funds, which as per their investment guidelines can’t invest meaningfully in papers rated below AA+.

Moreover, insurance companies and pension funds have a longer investment horizon, which improves liability term matching with IBHFL’s long maturity assets and thus bodes well for its Asset-Liability Management, it added.

Cost of funds reduction

The company estimated that an upgrade to ‘AA+’ will reduce its cost of funds by about 50 basis points. One basis point is equal to one-hundredth of a percentage point.

“Based on our present borrowing level, the reduction in cost of funds and the increased equity component will translate to a gain of about ₹325 crore at the PBT (profit before tax) level, which is about 20 per cent of FY2020-21 PBT.

“The RoA (return on assets) will also rise substantially and, despite the approximately 12.5 per cent dilution, the RoEs (return on equity) will rise appreciably,” the report said.

As part of IBHFL’s asset-light growth model, it has entered into co-lending agreement with HDFC, Bank of Baroda and Central Bank of India for sourcing home loans and with RBL Bank and Central Bank of India for sourcing secured micro, small and medium enterprise loans.

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S&P revises rating outlook on ICICI Bank to ‘stable’

Banking & Finance

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S&P Global Ratings has revised its rating outlook on ICICI Bank to stable from negative.

It has affirmed its ‘BBB-’ long-term and ‘A-3’ short-term issuer credit ratings on the private sector lender as well as its ‘BBB-’ long-term issue rating on the bank’s senior notes.

“We revised the rating outlook to reflect our view that ICICI Bank will maintain strong capital position over the next 24 months. The bank will benefit from the sale of stake in subsidiaries and gradual normalisation of earnings, which should reduce risks associated with its capital position,” S&P Global Ratings said in a statement on Friday.

The agency expects ICICI Bank will maintain a risk-adjusted capital ratio of more than 10 per cent over the next 24 months. “Our expectation factors in 13 per cent to 14 per cent credit growth for the bank, an improvement in earnings, and sale of stake in insurance subsidiaries over the period,” it said.

Stressed loans to peak

The agency however expects ICICI Bank’s stressed loans (non performing loans and restructured loans) to remain high when compared to that of international peers.

It said the bank’s stressed loans may peak at 6 per cent of total loans by March 31, but it would be lower than its estimate of 11-12 per cent for the Indian banking industry.

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Most Indian companies have protections to limit effect of currency fluctuations: Moody’s

Banking & Finance

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Moody’s Investors Service on Thursday said sustained weakening of the Indian rupee against the dollar will be credit negative for rated Indian companies that generate revenue in rupees but rely heavily on US-dollar debt to fund operations and thus have significant dollar-based costs.

However, the global credit rating agency expects that the negative credit implications will be limited.

Rupee view: INR positive as Fed maintains status quo

The observation comes in the backdrop of the Indian rupee closing around 74.66 against the US dollar on April 27, 2021, or about 3 per cent lower than levels in mid-March. The rupee has fallen over 15 per cent since January 2018, Moody’s said in a note.

“Most companies have protections to limit the effect of currency fluctuations. These include natural hedges, where companies generate revenue in US dollars or have contracts priced in US dollars; some US dollar revenue and financial hedges; or a combination of these factors to help limit the strain on cash flow and leverage, even under a more severe deprecation scenario,” said Annalisa Di Chiara, Senior Vice-President.

Rupee extends gains for second day; closes up by 7 paise at 74.66 against dollar

As a result, weaker credit metrics under a scenario in which the rupee depreciates a further 15 per cent against the dollar can be accommodated in the companies’ current rating levels.

Covid impact

Moody’s observed that refinancing risk associated with US dollar debt over the next 18 months also appears manageable, as most companies are well-known in the markets as repeat issuers and others are government-owned or government-linked entities with good access to the capital markets.

The agency noted that India is reporting new record daily increases in coronavirus infections, prompting new lockdowns and restrictive measures to curb the spread of the pandemic and raising concerns on their impact on the country’s pace of economic recovery.

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Lenders remain risk averse to additional lending or alter lending terms: Ind-Ra

Banking & Finance

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India Ratings and Research (Ind-Ra) said lenders remain risk averse despite only 5 per cent of its rated 450 issuers in the mid and emerging corporates (MEC) space availing the Reserve Bank of India’s (RBI) financial restructuring facility available till December 31, 2020.

The credit rating agency, in a report, opined that bankers have remained extremely risk-averse to extend additional lending or alter the lending terms for issuers (companies) having weak liquidity, high leverage or where the credit profile is unlikely to improve in the near to medium term.

Ind-Ra observed that the relief package offered by banks and festival demand coupled with positive sentiments will partially abate the near-term liquidity headwinds for lower rated mid and emerging corporates.

Funding constraints

However, the agency expects funding constraints to increase for issuers having stretched liquidity and a weak credit profile over FY22 and FY23, reducing the financial flexibility for those that have not availed loan restructuring.

Of Ind-Ra’s rated MEC portfolio, 56 per cent of the issuers primarily belonging to the ‘IND BB’ and below rating categories depict a stretched liquidity profile. Of these, 74 per cent belong to the Discretionary and Industrial segments.

“Developments like the fear of a second wave of pandemic…the availability of liquidity with the issuers at end-1H (April-September) FY22 once the additional bank funding availed is exhausted are key monitorables,” said Shivani Suvarna, Analyst, Ind-Ra.

Ind-Ra believes that notwithstanding the short-term liquidity relief, reverting to the pre-Covid profile would be prolonged, especially for the ones belonging to the Discretionary segment.

The agency said it will continue to monitor the credit and liquidity profile of the issuers in the MEC space and could take negative rating actions for issuers having weak liquidity or deteriorated long-term credit profile or a combination of both.

Restructuring: lower-than-expected

Ind-Ra attributed the lower-than-expected restructuring to the various government measures and faster demand recovery in the domestic market, supported by a marginal pick-up in exports in certain sectors.

“Issuers having availed restructuring are primarily rated in the ‘IND BB’ and below rating categories with stretched liquidity.

“Such issuers belong to the Industrial and Discretionary segments and operate mainly in sectors such as real estate and construction & engineering,” said Suvarna.

Ind-Ra believes the lower restructuring stems from the ₹3 lakh crore Emergency Credit Line Guarantee Scheme and the Covid-19 loans provided by banks, offering respite to issuers with weak liquidity and increasing their ability to withstand the sustained cash flow pressures caused by the Covid-19 led lockdown.

“Even though not all issuers had availed the additional funding, the same has flowed down to the entities lower down the value chain.

“Many banks have also automatically converted the interest due on the working capital loans under moratorium into term loans, thus, eliminating the need for the issuers to apply for the restructuring scheme,” the report said.

Moreover, the revised definition of micro, small and medium enterprises (MSMEs) has enhanced the access of freshly included entities to funding from the financial system.

Restructuring: Sentiments

Ind-Ra also believes that the sentiments of the issuers have played a role in them not availing the restructuring scheme. The liquidity crunch endured by the issuers in 1HFY21, backed by the onset of a recovery in 3Q (October-December) FY21, has led to a belief of their increased resilience towards their liabilities.

The opening of offices, factories, retail stores and malls backed by the festival and marriage season demand has led to the issuers witnessing a steady recovery in their credit profiles over October – December 2020, the report said.

Recovery for players operating in the textile sector was augmented by a demand improvement in their export markets. The production and consumption of steel have been improving month on month, backed by an increase in demand, reflecting in its prices.

The automobile industry also grew 6 per cent year on year on December 31, 2020, aided by festival demand, thus imbibing confidence in the small-medium scale auto dealers and OEM manufacturers.

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After banks, regulators to appeal against NCLT order, BFSI News, ET BFSI

Banking & Finance

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After banks, regulators, including the RBI, are set to appeal against an order of the National Company Law Tribunal’s (NCLT’s) Kolkata bench, which had allowed a moratorium on debt repayment by Srei Equipment Finance (SEFL). Some lenders have already moved the National Company Law Appellate Tribunal (NCLAT) to stay the order and appeal against it.

Banking sources told TOI that the RBI too will file a petition in the coming days as the NCLT had stopped all government or regulatory authorities from taking any coercive steps against the non-bank finance company, “including reporting in any form and/or changing the account status of the company from being a standard asset”.

“Credit rating agencies shall not consider any nonpayment to be a default and shall maintain the rating of SEFL at least that of investment grade,” an order issued late last month said.

The NCLT has asked the company to convene meetings of debenture holders, ECB lenders and perpetual debt instrument holders between May and July to work out a new scheme of arrangement. Earlier this month, CARE Ratings said it would continue to closely monitor the developments and is also seeking legal assistance.

SEFL had argued that the RBI allowed moratorium and loan restructuring for NBFC borrowers but finance companies were not given a moratorium. This along with the economic downturn in the wake of Covid-19, has led to an asset-liability mismatch, it argued.



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