ECL Finance

ECL Finance NCD Issuance

Kosamattam Finance Ltd Rating History

ECL Finance NCD Stucture

Financial Snapshot

ECL Finance: ECLF is the primary NBFC arm of Edelweiss Financial Services Limited (EFSL) with 100% shareholding. In March 2019, the company has signed an agreement with CDPQ (Canadian Pension Fund) for investment in the NBFC arm, ECL Finance Limited, of around Rs. 18 billion in a span of 2 years. Out of the said investment, Rs. 10.40 billion was received in May 2019 in the form of compulsorily convertible debenture. The credit business of ECLF includes wholesale lending like corporate loans, sponsor funding, real estate loans, collateralized loans against liquid securities and capital market related loans, SME loans and other retail loans. The Edelweiss group conducts retail credit business including home loans, small ticket home loans, loans against property, SME loans etc. through two other subsidiaries, namely Edelweiss Housing Finance Limited (EHFL) and Edelweiss Retail Finance Limited (ERFL) and regulatory approvals have been sought to merge ERFL with ECLF and make EHFL a 100% owned subsidiary of ECLF

Structured Collateralised Credit- are offered mostly to corporates against collateral such as liquid market securities, pledge of other securities, pledge of shares by promoters, immovable property, etc. Structured collateralized credit loans constituted 18.97% of total loan book.

Wholesale Mortgages- includes various structured financing solutions for finance to developers for real estate projects under construction, wholesale mortgages constituted 37.78% of the total loan book.

SMEs -includes credit facilities and short term loans to SMEs for meeting their business requirements, sme constituted 11.67 % of the total loan book.

Loans against securities include loans to investors against their existing portfolio of investments, which constituted 17.16 % of the total loan book.

Retail Mortgages – Loans against Property: This includes loans offered to self-employed individuals for business purposes against a mortgage of residential or commercial property, which constituted 12.57 % of the total loan book.

Agri Credit – As a part of agricultural value chain services, ECL finance extends short term finance against Agri commodities inventory stored in warehouses, agri credit constituted 1.85 % of the total loan book.

Credit Positives

·         Established brand

·         Experienced and qualified management

·         Pan India Presence

·         Strong Capital Position

·         Asset Quality

Credit Negatives

·         Decline in profitability

·         High exposure in real estate

·         High gearing ratio

Established Brand- Edelweiss Group is a diversified financial services engaged in credit, capital markets and other advisory businesses. The diversification in revenue streams has enabled to reduce the Group’s risk exposure to cyclical movements in domestic capital markets. On a consolidated basis during FY19, EFSL’s total income from operations rose by 22% to Rs. 108.86 billion from Rs. 89.20 billion in FY218 driven by a solid growth in investment banking and asset reconstruction fees and commission income.

Experienced and qualified management: The entire group has got the privilege to be managed by experienced and qualified professionals. Mr. Rashesh Shah is the Chairman and CEO of EFSL. Mr. Venkat Ramaswamy is the Executive Director. The Company also has a well qualified and experienced team of professionals looking after credit, risk, marketing, audit and other support functions.

PAN India Presence- ECL finance operates through a wide network of 119 branches, pan India presences reduce the reliance on any one region in India, geographic diversification also mitigates some of the regional, climatic and cyclical risks, such as heavy monsoons or droughts.

Comfortable Capitalisation: As on 30th June 2019, EFSL had a capital adequacy ratio of 19.40% and Tier I capital adequacy ratio of 14.90% against total cpaital adequacy of 18% and Tier I capital adequacy of 14.50% as on 31st March 2019 on consolidated basis. Similarly, gearing ratio stood at 4.50 times gross level and 3.70 times net level, excluding treasury assets as on 30 June 2019.

Asset Quality: Edelweiss Group portfolio has satisfactory asset quality which is evident from the fact that gross NPA of 2.33% and net NPA of 1.24% as on 30th June 2019 against GNPA of 1.87% and Net NPA of 0.83% as on 31st March 2019. However, the company is exposed to the external risks in the current environment with 41% of its portfolio being corporate loans, out of which 26% is real estate exposure and 15% is in structured credit.

Decline in profitability: During Q1FY20, company has registered a 50% decline in profitability as compared to Q1FY19. The decline was driven by higher provisions and increase in cost of borrowings. Consolidated cost of borrowing has increased to 10.34 % during Q1FY20 as against 10.1% during Q4FY19. Return on assets ex insurance has declined to 1.7% during Q1FY20 from 2.4% during Q4FY19.

Exposed to credit risk in wholesale credit business;  The Group remained exposed to credit risks as its high concentration in wholesale lending, mainly in the area of the structured collateralised funding and real estate segments, which are inherently risky in nature. The largely untested nature of the book (given the principal moratorium and bullet repayment structure for a significant quantum of loans) and constrained financial flexibility of the underlying borrowers, given their high leverage coupled with the slowdown in their operations, add to the concerns regarding the wholesale book.

High Gearing ratio:The company’s gearing (net worth and minority interest excluding insurance) stood elevated at 5.89 times as on March 31, 2019 from 7.32 times as on March 31, 2018. The gearing excluding insurance net worth improved to 5.19 times (based on March 31, 2019 numbers) from 5.89 times following the capital infusion. The capital raise provides some cushion to absorb losses, if any, on the stressed book.

Liquidity– As on 31st August,  the group has liquidity of Rs 94 billion including Rs 48 billion of liquid assets, Rs. 46 billion of overnight liquidity cushion. The liquidity cushion of Rs 46 billion includes investments in mutual fund, unutilized bank OD lines, Bank fixed deposits and CBLO lending