CRISIL has also assigned its 'CRISIL A1+' rating to the commercial paper programme of Asirvad.
The rating reflects the management and financial support that Asirvad derives from its parent Manappuram Finance Ltd (Manappuram Finance; rated 'CRISIL AA-/Stable/CRISIL A1+'). The rating also factors in adequate capitalisation and healthy profitability. These rating strengths are partially offset by risks relating to geographical concentration and rapid growth in portfolio, and risks arising from potential regulatory and legislative changes in the microfinance sector.
According to Crisil, Asirvad is adequately capitalised for its expected scale of business. Net worth and gearing (including securitisation as part of debt) were Rs 2.3 billion and 3.9 times as on March 31, 2016. The networth has increased from Rs 1.1 billion a year earlier, backed primarily by infusion of capital of around Rs 1 billion by Manappuram Finance during the year, in addition to higher accrual. Additional infusions of equity are expected to support capital adequacy over the medium term. The gearing, adjusted for off-balance sheet portfolio, should remain around 6 times.
Profitability is expected to remain healthy, underpinned by ramp-up in scale of operations and fee-based income.
The rating on Asirvad's debt centrally factors in expectation of support from the parent. The microfinance business is strategically important to the Manappuram group, and is its largest business after gold loans. The business is scalable, and has been profitable and, therefore, should be a key growth driver for the group over the medium term. Manappuram Finance holds 90% of the equity in Asirvad; has infused growth capital and will infuse capital as and when required. In addition, V.P. Nandakumar, MD & CEO, and two other directors of Manappuram Finance are on the board of Asirvad. Given Manappuram Finance's strong moral obligation to support Asirvad, the parent's financial and managerial support are expected to continue over the medium term.