Aryadhan Financial Solutions Private Limited: Rating reaffirmed; Outlook revised to Stable Summary of rating action - ICRA
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August 30, 2019
Aryadhan Financial Solutions Private Limited: Rating reaffirmed; Outlook revised to Stable
Summary of rating action
Previous Rated Amount Current Rated
Instrument Rating Action
(Rs. crore) Amount(Rs. crore)
Long-term Bank Lines (Fund [ICRA]BB+; reaffirmed, Outlook revised
50.00 50.00
Based/Non-fund Based) to Stable from Positive
Rationale
The rating factors in the synergies from the operational linkage between Aryadhan Financial Solutions Private Limited
(AFSPL) and its parent, Arya Collateral Warehousing Pvt. Ltd. (ACWPL), in terms of the sourcing of customers and quality
maintenance of the collateralised commodities. The rating also considers the company’s comfortable asset quality
indicators, albeit on a relatively low seasoned book, with Gross NPA of around 0.5% (on a 180 dpd basis) as on March 31,
2019. The rating also factors in the good liquidity of the underlying collateral in the form of the agricultural commodities
stored at the parent’s warehouses with access to nearby mandis where they can be disposed of in a timely manner in
case of default by the customers.
The rating is, however, constrained by AFSPL’s relatively small scale of operations (portfolio of Rs. 33.86 crore as on April
30, 2019 against Rs. 20.02 crore as on March 31, 2018), the relatively shorter track record of operations, lack of diversity
in the borrowing profile and subdued profitability indicators, with a reported return on average net worth of around -
7.1% in FY2019, owing to higher operating expenses.
The revision in the outlook follows the lower-than-expected equity raise by the company, which impacted its growth in
FY2019. In ICRA’s opinion, AFSPL’s ability to raise a commensurate amount of capital in a timely manner would be critical
for improving its credit profile going forward. ICRA has also taken note of the relatively weak borrower profile,
constituting small and medium scale farmers, along with the inherent cyclicity of the commodity financing business.
However, the risk is somewhat mitigated by the conservative loan-to-value ratios (LTVs) of 65-70%. Overall, AFSPL’s
ability to raise funds (both debt and equity) to grow as per business plans in a competitive market while maintaining the
asset quality and improving its profitability indicators would be a key rating sensitivity.
Outlook: Stable
ICRA believes that AFSPL will continue to benefit from its synergies with its parent, in terms of the sourcing of customers
and quality maintenance of the collateralised commodities. The outlook may be revised to Positive if there is a
substantial improvement in the company’s capitalisation profile, which would help improve the scale of operations. The
outlook may be revised to Negative if there is a significant deterioration in the company’s asset quality parameters,
thereby affecting its financial risk profile.
Key rating drivers
Credit strengths
Business growth supported by operational synergies with parent – ACWPL, the parent entity, shares its sourcing and
collection team with the company, thereby supporting its operational profile. Further, the collateral against which the
funding is extended to the farmer is kept at the parent’s warehouse, where it is constantly checked for spoilage, theft,
1etc. This also provides support in case of default as the commodities can be sold without much time lag, thereby helping
AFSPL keep the losses in case of defaults low.
Comfortable asset quality indicators, albeit on a relatively low seasoned book – The company’s asset quality was
comfortable with Gross NPA of around 0.5% (180 dpd basis) as on March 31, 2019, supported by the liquidity of the
underlying collateral in the form of agricultural commodities kept at the parent’s warehouses. ICRA, however, notes that
the portfolio vulnerability is augmented by the relatively marginal credit profile of the underlying borrowers, who are
susceptible to political, regulatory and environmental risks. Nevertheless, this is mitigated to some extent by the
adequate security cover on the lending book with LTV ratios in the range of 65-70%. Overall, AFSPL’s ability to maintain
its asset quality while improving its scale of operations would be a key rating sensitivity.
Credit challenges
Low track record and small scale of operations – The company’s NBFC business is relatively new with its operations
commencing in the latter half of FY2017. Further, owing to the delay in equity infusion, the scale of operations has
remained small with a portfolio of Rs. 27.25 crore as on March 31, 2019 (Rs. 33.86 crore as on April 30, 2019). ICRA has
taken note of the equity infusion of Rs. 12 crore in Q1 FY2020 by the parent, which is expected to be sufficient to meet
the company’s growth target for FY2020. However, the need for external capital remains high given the growth plans,
given that its internal capital generation is likely to remain subdued over the medium term.
High portfolio vulnerability on account of marginal borrower profile and seasonality of commodity business – The
company’s target segment mostly constitutes small and medium scale farmers along with large farmers and farmer’s
organisations with the loans largely being based on the quality of collateral rather than the income profile of the
borrowers. Further, given the limited, albeit improving seasoning, the current asset quality indicators are not fully
reflective of the credit quality. As a result, delinquencies could increase from the current levels with increased portfolio
seasoning. ICRA, however, takes comfort from the adequate security cover on the lending book with LTV ratios in the
range of 65-70%. Further, being a beneficiary of Rabobank Foundation’s credit guarantee scheme (covering loss up to
50% of the loan amount), the eventual losses for the company in case of defaults are expected to be low. Moreover,
since the collateral is stored at the parent’s warehouses, this provides support in case of liquidation of the commodities
in an event of default.
Lack of diversity in borrowing profile – Given the low vintage of business operations along with the small scale of
operations, AFSPL has limited relationships with lenders, especially in the banking channel, with most of the funding
coming from other larger NBFCs (80% of the overall borrowing profile as on June 30, 2019). Given the growth plans and
current market conditions, the company’s ability to diversify its lender base and raise fresh debt would be critical going
forward. Nevertheless, the current liquidity profile is comfortable, given the currently modest scale of operations, with
sufficient sanctioned and unutilised bank lines of around Rs. 8 crore as on June 30, 2019, further supported by an equity
infusion of Rs. 12 crore in Q1 FY2020.
Subdued profitability indicators owing to relatively high operating expenses – The company’s average yields stood at
around 14% and generated a spread of around 2-2.5% over its borrowing costs. While AFSPL has been investing in
upgrading its systems and process, in line with its growth targets, the delayed equity infusion led to lower-than-
2anticipated growth in the loan book. This led to high operating expenses in relation to average assets (8.1%*1 in FY2019),
resulting in a reported loss with return on net worth of -4.4% in FY2019.
Adequate capitalisation levels for current scale of operations; however, need for external capital remains high – The
company’s capitalisation profile is adequate in relation to the current scale of operations with a gearing of 1.48x on a net
worth of Rs. 12.51 crore as on March 31, 2019. The capitalisation profile was further supported by an equity infusion of
Rs. 12 crore in Q1 FY2020, which led to a gearing of 1.11x on a net worth of ~Rs. 25 crore. Nevertheless, the company
would need further external capital to grow as per its business plans in the medium term, given that the internal capital
generation is likely to remain modest over the near term.
Liquidity position
The company’s liquidity profile is currently adequate in relation to its current scale of operations with around Rs. 36.81
crore of inflows as against Rs. 24.78 crore of repayments as on March 31, 2019. Further the company had an equity
infusion in Q1FY2020 in addition to sanctioned and unutilised drawable bank lines of Rs. 8 crore supporting the liquidity
profile.
Analytical approach
Analytical Approach Comments
Applicable Rating Methodologies ICRA’s Credit Rating Methodology for Non-Banking Finance Companies
Parent/Group Support Arya Collateral Warehousing Pvt. Ltd.
Consolidation/Standalone Standalone
About the company
Aryadhan Financial Solutions Private Limited commenced operations in late 2017 as an NBFC subsidiary of Arya Collateral
Warehousing. The company provides post-harvest commodity financing in association with its parent, which was
incorporated in 1992 with a presence in 17 states spread across more than 250 locations and managing over 600
warehouses across the country.
The company reported a loss of Rs. 55 lakh on a total asset base of Rs. 32.11 crore as on March 31, 2019 against PAT of
Rs. 0.24 lakh on a total asset base of Rs. 21.2 crore as on March 31, 2018. Its total net worth stood at Rs. 12.51 crore as
on March 31, 2019 against Rs. 13.06 crore as on March 31, 2018 and the reported gearing stood at 1.48x as on March 31,
2019.
1
Adjusted for the expense on purchase of commodities
3Key financial indicators
Rs. crore FY2018 FY2019
Loan Book 20.0 27.3
Net Worth 13.2 12.5
Total Borrowings 8.0 18.5
Total Assets 21.2 32.1
Return on Average Assets 1.9% -3.1%
Return on Average Equity 3.0% -7.1%
Gearing (times) 0.6 1.5
Gross NPA% 0.0% 0.5%
Net NPAs% 0.0% N/A
Source: AFSPL, ICRA research
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years
Chronology of Rating History for the
Current Rating (FY2020)
past 3 years
Instrument Amount Amount
Type Rated Outstanding Aug-19 FY2019 FY2018 FY2017
(Rs. crore) (Rs. crore)
Bank Lines-
Long Term
Long [ICRA] BB+
(fund-based/ 50 50 [ICRA]BB+(Stable) N/A N/A
Term (Positive)
non-fund
based)
Source: ICRA research
Complexity level of the rated instrument
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in
4Annexure-1: Instrument details
Date of Amount
Maturity Current Rating and
ISIN Instrument Name Issuance / Coupon Rate Rated
Date Outlook
Sanction (Rs. crore)
Long Term Bank
N/A N/A N/A N/A 50 [ICRA]BB+(Stable)
Lines (Proposed)
Source: AFSPL
5ANALYST CONTACTS
Karthik Srinivasan Manushree Saggar
+91-22-6114 3444 +91-124-4545316
karthiks@icraindia.com manushrees@icraindia.com
Deepak Narang
+91-124-4545442
deepak.narang@icraindia.com
RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com
Helpline for business queries:
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
info@icraindia.com
About ICRA Limited:
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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
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For more information, visit www.icra.in
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ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of
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