Rationale

 The ratings continue to factor in SATYA MicroCapital Ltd.’s (SML) track record in the microfinance business and its fairly diversified geographical presence. SML’s consolidated assets under management (AUM) grew by ~30% in FY2024 to Rs. 6,139 crore as on March 31, 2024, supported by the healthy increase in the borrower base. The company’s funding profile is fairly diversified with more than 70 active lender relationships as on March 31, 2024. Given the high pace of growth vis-à-vis internal capital generation, SML‘s consolidated managed gearing1 has been increasing and was reported at 5.9 times as on March 31, 2024. The company last raised ~Rs. 57-crore equity capital from existing shareholders including Gojo & Co. INC (Gojo), promotors, employees etc. in March 2024 through rights issue, which has helped support its capitalisation profile to some extent. ICRA notes that SML is in the process of raising fresh equity capital from existing investors, Gojo, and International Finance Corporation (IFC) to maintain a prudent capitalisation profile while supporting its growth plans. Although SML has been able to raise equity capital regularly from its promoters and investors, a delay in its capital-raising plans could adversely impact its credit profile and the same shall remain a monitorable. The ratings also consider SML’s relatively moderate asset quality metrics. The company’s standalone gross non-performing assets (GNPAs) stood at 2.2% as on March 31, 2024 (1.3% as on March 31, 2023). Further, it had security receipts (SRs) outstanding of around Rs. 89 crore (1.8% of its on-book portfolio) as on March 31, 2024, the recovery from which remains a monitorable. Its subsidiary, SATYA Micro Housing Finance Private Limited (SMHFPL), reported GNPAs of 0.5% as on March 31, 2024. As SMHFPL is in a nascent stage of operations with an unseasoned book, its asset quality shall remain monitorable. SML’s consolidated profitability remains under pressure because of the relatively higher level of operating expenses and credit costs. The ratings continue to factor in the risks associated with unsecured lending and the political and operational risks associated with microlending and affordable housing finance lending, which may lead to volatility in the asset quality indicators. The Stable outlook on the [ICRA]BBB+ rating reflects ICRA’s opinion that SML shall maintain a steady credit profile, while expanding its scale of operations, supported by its demonstrated ability to raise debt funds and equity capital in a timely manner. Nevertheless, any delay in raising capital, which would constrain the capital structure, will adversely impact the credit profile.