Poonawalla Fincorps Rating Upgraded to CRISIL AAA

Pune, Maharashtra, India:
 CRISIL Ratings Ltd (CRISIL) has upgraded the rating for long-term debt instruments and bank facilities of Poonawalla Fincorp Limited (PFL) to “CRISIL AAA (triple A)/ Stable”.

The rating action is driven by the increased strategic importance of PFL to Cyrus Poonawalla Group, whose flagship company is Serum Institute of India Private Limited (SIIPL; rated CRISIL AAA/Stable/CRISIL A1+). This is in line with the group’s focus on domestic consumption as a key theme in their growth philosophy. Post the divestment of Poonawalla Housing Finance Limited (PHFL), PFL will play a key role through which this strategy will be implemented in the areas of interest of the group i.e., consumer and MSME (micro, small and medium enterprises) financing through tech driven lending.

Commenting on the upgrade, Mr. Abhay Bhutada, Managing Director, said, “The rating upgrade testaments our business model and relentless focus on executing the stated strategy to build a strong foundation for a long-term sustainable leadership position in the industry. The upgrade would help further strengthen our liability franchise, optimize borrowing cost, and accelerate our growth journey.”

The rating action also reflects the improvement in the standalone profile of the company marked by steady scale up of the loan book with diversified product offering, healthy capitalization metrics, improving earnings profile and healthy resource profile marked by competitive cost of funds. Post-acquisition of Magma Fincorp Limited (MFL) by the Cyrus Poonawalla Group, the new management of PFL revised its product strategy, targeting good quality, credit-tested, mass-affluent retail consumers, and small businesses in semi-urban/urban locations. Consequently, the company announced its plans to discontinue some of the loan products originated by erstwhile MFL. As on December 31, 2022, the company reported an AUM (assets under management) of Rs 13,929 crore, as against Rs 11,765 crore as on March 31, 2022, and Rs 10,563 crore as on March 31, 2021. Of this, the discontinued portfolio constituted around 8.5% as on December 31, 2022, which is expected to run down in the near term. As per the business update for Q4FY23 given by the company, the AUM has increased further by 16% QoQ and 37% YoY to reach ~Rs 16,120 crore as on March 31, 2023. The total disbursements have gathered momentum in fiscal 2023 towards the new segments and registered a YoY growth of 109% (aggregate ~Rs 15,750 crores for fiscal 2023).

The company has also focused on a direct digital origination strategy which contributed to ~81% of disbursements in Q4FY23 (as compared to ~24% in Q4FY22). The asset quality metrics too remain comfortable, with most of the GNPA stemming from the legacy portfolio. As per Q4FY23 business update, the GNPA and NNPA are expected to improve further to less than 1.55% and 0.85% respectively as on March 31, 2023. However, given the change in the portfolio strategy, the loan book lacks seasoning and ability to scale up portfolio whilst maintaining asset quality metrics will remain a key monitorable.

CRISIL Ratings also notes that the company has improved its resource profile and funding costs as evidenced by borrowings from the market/ banks at competitive interest rates, post-acquisition by the Cyrus Poonawalla Group.

Rating Action

CRISIL Ratings believes that PFL will remain of high strategic importance to Cyrus Poonawalla Group, given the majority shareholding in PFL, through Rising Sun Holdings Private Limited (RSHPL); a special purpose vehicle owned and controlled by Mr. Adar Poonawalla. CRISIL Ratings also notes that there is a strong management oversight for the company to conduct its business, with group having prominence on board and Mr. Adar Poonawalla being the chairman of the board, thereby ensuring active involvement in the group-level strategies. Additionally, the brand sharing further enhances the expectation of support to the financial services entity if required.