By Jindal Haria

India Ratings and Research (Ind-Ra) has assigned NeoGrowth Credit Private Limited’s (NeoGrowth) INR100 million commercial paper (CP) a Short-term rating of ‘IND A3+’. The agency already maintains a rating of ‘Provisional IND BBB’ with a Stable Outlook on the company’s proposed INR500 million non-convertible debentures (NCDs).

The rating reflects NeoGrowth’s ability to manage short-term liquidity through short loan tenors and undrawn credit lines. The ratings are supported by a low proportion of bank loans in NeoGrowth’s debt profile.

KEY RATING DRIVERS

Short-Term Liquidity Supported by Short Asset Tenors: The company has a short asset tenor and positive asset funding gaps (short-term advances less short-term liabilities). Moreover, the rating is supported by the longer tenor debt and undrawn lines of NeoGrowth (INR1.7 billion, including cash credit lines of INR 100 million, in November 2016). In the long term, liquidity will depend on NeoGrowth’s continued ability to raise higher tenor liabilities.

Diversification of Funding Sources Likely to Pose Challenge: NeoGrowth had high borrowing costs in 1HFY17, considering its main lenders are non-banking financial companies (NBFCs) and development finance institutions (DFIs). The company plans to diversify its sources of funding by using structured products and accessing other development financial institutions until bank loans form a higher portion of its liabilities. The company has tied up its financing requirements up to March 2017. In Ind-Ra’s assessment, funding could be a challenge for NeoGrowth’s expansion owing to the nature of its loan assets.

Adequate Capital: NeoGrowth plans to maintain a minimum capital adequacy ratio (CAR) of about 20% and a Tier 1 capital of about 15% (September 2016: INR1.51 billion overall capital, 37.4% Tier 1 capital and 37.4% capital adequacy ratios). Ind-Ra expects the company to have a lower leverage (1HFY17: debt/equity 1.94x) than that of similar rated peers because of its borrower profile.

To read a detailed rational, please click here.


RATING SENSITIVITIES

Positive: Higher proportion of bank loans in the liability portfolio and continued ability to raise longer tenor debt while maintaining adequate short-term liquidity could lead to positive rating action.

Negative: Capitalisation falling below or nearing minimum regulatory requirements, net loss in a financial year or a deterioration in the liquidity profile due to an unsustainable increase in credit costs could lead to a negative rating action.


COMPANY PROFILE

NeoGrowth is an NBFC with 11 branches that primarily lends to retail merchants. Its loan portfolio stood at INR3.92 billion at the end of September 2016.



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.


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Analyst Names

  • Primary Analyst

    Jindal Haria

    Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001750

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121