September 04, 2024

Sarvagram Fincare Private Limited: Rating reaffirmed; rated amount enhanced;

[ICRA]A3+ assigned
Summary of rating action

Previous Rated Current Rated

Instrument* Rating Action
Amount (Rs. crore) Amount (Rs. crore)
[ICRA]BBB(Stable);
Long Term/Short Term Fund Based- Others 200.00 300.00 reaffirmed/assigned for enhanced
amount; [ICRA]A3+; assigned
NCD programme 100.00 100.00 [ICRA]BBB(Stable); reaffirmed

NCD programme 0.00 50.00 [ICRA]BBB(Stable); assigned

Total 300.00 450.00
*Instrument details are provided in Annexure I

Rationale
The assigned rating takes into consideration the comfortable capital profile of Sarvagram Fincare Private Limited (SFPL) and
Sarvagram Solutions Private Limited (SSPL), together referred to as the Sarvagram Group, backed by regular equity infusions
in the past. The Group’s net worth stood at Rs. 312.2 crore1 (provisional) as of March 2024 with a managed gearing2 of 2.6
times (reported gearing of 2.1 times). The rating also takes into consideration the Group’s focus on rural financing with good
growth potential, backed by the experience of the founders in this segment and the well-defined underwriting and risk
management framework.

The rating is, however, constrained by the inherently risky customer profile, which is susceptible to asset quality shocks, and
the low seasoning of the portfolio as significant portfolio growth was witnessed over the last two years. The rating also
considers the Group’s weak earnings profile, constrained by the elevated operating expenses as the Group has been ramping
up its operating infrastructure over the last few years. Going forward, improving the operational efficiency while maintaining
the asset quality and keeping the credit costs under control would be critical for enhancing the earnings profile on a sustained
basis.

The Stable outlook factors in ICRA’s expectations that the company would continue to maintain a comfortable capitalisation
profile and improve its earnings profile in the near term, while sustaining its portfolio growth.

Key rating drivers and their description

Credit strengths

Comfortable Capital Profile: The Group has maintained comfortable capitalisation metrics, supported by regular capital
infusions. SSPL has raised equity of Rs. 400 crore till date (Rs. 15 Cr in FY 2024, Rs. 282.8 crore in FY2023, Rs. 76.9 crore in
FY2021, Rs. 25.8 crore in FY2020) from private equity (PE) investors – Elevar Equity, Elevation Capital, Temasek and TVS Capital.
Of this, SSPL has infused Rs. 253 crore into SFPL (Rs. 138 crore in H1 FY2024, Rs. 37 crore in FY2023, and Rs. 78 crore during
FY2020-FY2022) till date. The Group’s net worth stood at Rs. 312.2 crore (provisional) as of March 2024 (Rs. 308.9 crore as of

1 Net of goodwill and inclusive of minority interest

2 Managed Gearing = (On-book borrowings + Total off-book exposure)/Net worth (Net of goodwill and inclusive of minority interest)

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 March 2023) with a managed gearing of 2.6 times (reported gearing of 2.1 times) and 1.3 times as of March 2023 (reported
gearing of 1.1 times). ICRA notes the impact of the recent Reserve Bank of India (RBI) circular {higher risk weights for
consumption credit extended by non-banking financial companies (NBFCs)} on SFPL’s capital adequacy, with personal loans
accounting for about 25% of the overall assets under management (AUM) as of March 2024. SFPL’s low leverage shall,
however, support the capital profile. ICRA expects the managed gearing to be capped at 4 times in the near-to-medium term.
The Group would need to raise further equity in the near term, given its steep growth plans and reported losses (albeit on an
improving trend).

Focus on rural finance with good growth potential – The Group’s target customers are rural households, a segment which has
typically been underserved and offers good growth potential over the medium-to-long term. As of March 2024, the Group had
an operational presence in 124 branches across 5 states (Rajasthan, Gujarat, Maharashtra, Karnataka and Telangana). The
AUM increased at a compound annual growth rate (CAGR) of 165% between FY2021 to FY2024, supported by branch expansion
and the scaling up of operations in existing branches. The Group’s total AUM stood at Rs.942 crore as of March 2024 (Rs. 411
crore as of March 2023). Its field presence, through its branch operations, is complemented by the digitally-enabled support
processes, including for the onboarding of customers, the know your customer (KYC) process, credit underwriting and
collections.

The key management personnel have long-standing experience in rural finance. SSPL has a five-member board consisting of
one independent director, two nominee directors representing the PE investors (Elevar Equity and Elevation Capital), and two
co-founder directors. SFPL has a four-member board, consisting of two co-founder directors and two independent directors.
Going forward, ICRA expects the experience of the founders and the well-defined credit underwriting and risk management
processes to support the scaling up of operations.

Credit challenges

Modest customer segment, though prudent underwriting policies support asset quality – The Group’s target customer profile
is rural households, with sources of income from farm (dairy income, agricultural income, etc.), small businesses or salary. As
of March 2024, around 38% of the exposures were towards customers with primary income from the farm/dairy segment.
ICRA notes that this segment is inherently risky with uneven cash flows and susceptibility to asset quality shocks.

However, the Group’s well-defined underwriting and risk management practices would support the asset quality in the near-
to-medium term. The Group typically targets households with multiple income sources and with a credit history (new-to-credit
segment accounted for only ~6-7% of the portfolio as of FY2024). Around 69% of the portfolio, as of March 2024, is secured
by mortgage on residential/commercial/agricultural property, further supporting the risk profile of the Group’s portfolio.
Nevertheless, given the modest track record of operations, the portfolio lacks seasoning. Thus, the ability to manage the asset
quality as the portfolio scales up is yet to be seen and would remain a key monitorable.

Weak earnings profile – The Group has been undergoing significant scale-up of its operational infrastructure, including
branches, technology-related augmentation and employee base, over the last few years. This has resulted in high operating
expenses and the Group has continued reporting losses. Nevertheless, with the reduction in operating cost/AMA3 to 13.0%
(provisional) in FY2024 from 14.6% in FY2023 (25.5% in FY2022) and improvement in NIM/AMA 4 to 9.2%(provisional) in FY2024
from 6.1% in FY2023, the loss declined to (-)1.2% of AMA (provisional) in FY2024 from (-)6.9% of AMA in FY2023. The credit
costs (as a percentage of AMA) have remained under control in the past (0.4% in FY2024 and 0.7% in FY2023).

3 Operating cost /Average managed assets

4 Net Interest Margin/Average managed assets

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 On a standalone basis, SFPL reported a profit of Rs.7.6 crore in FY2024 vis-à-vis a loss of Rs. 19.2 crore in FY2023. Going forward,
ICRA expects the profitability to improve with the planned scaling-up of the loan portfolio, supported by an improvement in
the operational efficiency. However, it would be critical to keep the credit costs under control.

Liquidity position: Adequate

As on April 30, 2024, SFPL (standalone) was carrying unencumbered on-book liquidity of Rs. 38.6 crore against scheduled debt
obligations of Rs. 196.1 crore from May 2024 to October 2024. The company also has scheduled collections of Rs.339.9 crore
during this period. Its asset-liability maturity (ALM) profile, as of March 2024, reflects no cumulative negative mismatches in
the less than-one-year bucket. As of March 31, 2024, the Group had a cash and bank balance of Rs.93.5 crore and mutual fund
investments of Rs.19.2 crore.
The funding mix comprises borrowings from NBFCs (constituting 64% in March 2024), banks (21%) and non-convertible
debentures (NCDs; 15%). Going forward, the share of bank borrowings is expected to increase as the Group diversifies its
borrowing profile.

Rating sensitivities

Positive factors – Significant improvement in the earnings profile, supported by sustained portfolio growth, improved
operating efficiency and stable asset quality performance.

Negative factors – Pressure on the rating could arise if the Group is unable to improve its earnings profile. Deterioration in the
asset quality, resulting in 90+ days past due (dpd) of more than 5%, or in the capitalisation profile would also negatively impact
the rating.

Analytical approach

Analytical Approach Comments

Applicable rating methodologies Rating Methodology for Non-banking Finance Companies
Parent/Group support Not Applicable
The rating is based on the consolidated financial statements of Sarvagram
Consolidation/Standalone Solutions Private Limited and its subsidiary, Sarvagram Fincare Private
Limited

About the company

Sarvagram Fincare Private Limited (SFPL) is a non-deposit taking NBFC that focuses on providing credit products such as farm
loans, business loans, housing loans, personal/consumer durable loans, and gold loans to households with multiple sources of
income in rural India. It was incorporated in November 2018 and the corporate office is in Mumbai. SFPL is a 79.7% subsidiary
of Sarvagram Solutions Private Limited (SSPL), with the balance held by the founders – Mr. Utpal Isser and Mr. Sameer Mishra.
SSPL provides non-lending financial services such as farm mechanisation solutions, insurance distribution, etc, in the same
geographies catered to by SFPL through a network of individual franchisees (Sarvamitras). SSPL also provides a digital platform
with technology solutions to SFPL.

The Group reported a net loss of Rs.11.6 crore (provisional) in FY2024 on total managed assets of Rs. 1165.0 crore (provisional)
while it reported a net loss of Rs. 34.1 crore on total managed assets5 of Rs. 744.5 crore in FY2023. On a standalone basis, SFPL
reported a net profit of Rs.7.6 crore on total managed assets of Rs.1058.0 crore in FY2024 while it reported a net loss of Rs.
19.2 crore on total managed assets of Rs. 491.5 crore in FY2023.

5 Managed Assets = Total Assets (net of goodwill) + Total off-book portfolio

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 Key financial indicators

SSPL (Consolidated) FY2022 FY2023 FY2024*

Accounting as per IGAAP IGAAP IGAAP
Total income 25.8 79.1 176.2
Profit after tax (29.6) (34.1) (11.6)
Total managed assets 236.8 744.5 1,165.0
Return on managed assets -17.7% -6.9% -1.2%
Managed gearing (times) 2.5 1.3 2.6
Source: Company, ICRA Research; *provisional numbers; All ratios as per ICRA’s calculations; Amount in Rs. crore

SFPL (Standalone) FY2022 FY2023 FY2024

Accounting as per IGAAP IGAAP IGAAP
Total income 22.0 70.3 157.6
Profit after tax (21.2) (19.2) 7.6
Total managed assets 214.1 491.5 1,058.9
Return on managed assets -15.4% -5.4% 1.0%
Managed gearing (times) 3.0 5.9 3.8
Gross NPA/GS3# 1.1% 1.0% 2.0%
CRAR 28.0% 18.8% 21.9%
Source: Company, ICRA Research; # GNPA for FY2022 and FY2023 are based on 180+dpd, FY2024 is based on 90+dpd;
All ratios as per ICRA’s calculations; Amount in Rs. crore

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Chronology of rating history
Current rating (FY2025)
for the past 3 years

Instrument Amount FY2024 FY2023 FY2022

Type rated Sep-04-2024
(Rs. crore)
Date Rating Date Rating Date Rating
Long
Term/Short Long [ICRA]BBB [ICRA]BBB
300.00 Jan-08-2024 - - - -
Term Fund term (Stable)/[ICRA]A3+ (Stable)
Based- Others
NCD Long
50.00 [ICRA]BBB (Stable) - - - - - -
programme term
NCD Long [ICRA]BBB
100.00 [ICRA]BBB (Stable) Jan-08-2024 - - - -
programme term (Stable)

Complexity level of the rated instruments

Instrument Complexity Indicator

Long-term fund based – Term loan Simple
NCD programme Simple

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 The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here

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 Annexure I: Instrument details
Amount
Date of Coupon Current Rating
ISIN Instrument Name Maturity Rated
Issuance Rate and Outlook
(Rs. crore)
NA Long Term Fund Based Aug 23, 2021 - Aug 14, 2028 217.93 [ICRA]BBB (Stable)
NA Short Term Fund Based -
- - Aug 14, 2028 0.50 [ICRA]A3+
Overdraft
NA Long Term/Short Term Fund [ICRA]BBB
- - - 81.57
Based- Others (unallocated) (Stable)/[ICRA]A3+
INE0LEQ07061 NCD programme February 29, September [ICRA]BBB (Stable)
13% 25.00
2024 20,2026
INE0LEQ07053 NCD programme January 31, September [ICRA]BBB (Stable)
13% 25.00
2024 20,2026
Unallocated NCD programme - - - 100.00 [ICRA]BBB (Stable)
Source: Company

Please click here to view details of lender-wise facilities rated by ICRA

Annexure II: List of entities considered for consolidated analysis

Company Name Ownership Consolidation Approach
Sarvagram Solutions Private Limited Parent Full Consolidation
Sarvagram Fincare Private Limited 79.7%* Full Consolidation
*Held by Sarvagram Solutions Private Limited

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 ANALYST CONTACTS
Karthik Srinivasan A M Karthik
+91 22 6114 3444 +91 44 4596 4308
[email protected] [email protected]

R Srinivasan Ajay Bathija

+91 44 4596 4315 +91 22 6114 3448
[email protected] [email protected]

RELATIONSHIP CONTACT
L. Shivakumar
+91 22 6114 3406
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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