CARE Ratings update on rating of Poonawalla Fincorp Limited

CARE Ratings has assigned 'CARE PP MLD AA+; Stable' rating to the Proposed Principal Protected Market Linked Debentures of Poonawalla Fincorp Limited [PFL; erstwhile Magma Fincorp Limited (MFL)]

Further, CARE Ratings has reaffirmed the ratings of various long-term and short-term bank facilities/instruments of Poonawalla Fincorp Limited [PFL; erstwhile Magma Fincorp Limited (MFL)] at 'CARE AA+; Stable' and 'CARE A1+'.

The reaffirmation in the ratings continues to factor in the strength derived from the promoter, i.e., the Cyrus Poonawalla Group which holds 61.49% stake through Rising Sun Holdings Private Limited (RSHPL) with Mr Adar Poonawalla, as the Chairman of the Board, shared brand name and expectation of timely need-based financial support from the Group. The sizeable investment made in the acquisition of PFL reflects the strategic importance of the financial services business to the group.

The ratings also factor in significant infusion of equity capital (Rs.3,456 crore in May 2021) resulting in comfortable capital adequacy ratio (CAR) and low leverage. Additionally, the comfortable liquidity profile, induction of professional management, revised product focus towards better quality borrowers, and reduction in cost of funds are also key factors supporting the ratings on a consolidated basis. The ratings continue to draw strength from PFL's long track record of operations and wide branch network.

Post the significant capital infusion, RSHPL holds 61.5% stake and is classified as the sole promoter of PFL, and the erstwhile promoters is re-classified to public category.

Furthermore, on May 27, 2022, IRDAI has approved the transfer of PFL's stake in Magma HDI General Insurance Limited (MHDI) of 55% to Sanoti Properties LLP, a wholly owned entity of the Cyrus Poonawalla group. This transaction is being undertaken to be compliant with IRDAI regulations on ownership of insurance companies.

The Cyrus Poonawalla group is one of the leading players in the Pharmaceuticals & Biotechnology segment. The group's flagship company; Serum Institute of India Pvt Ltd (SIIPL; rated 'CARE AAA; Stable/CARE A1+'), is one of the world's largest manufactures of Measles/DTP vaccines. The group also set up Serum Institute Life Sciences Pvt. Ltd. (SLS; rated 'CARE AAA; Stable/CARE A1+') to fulfil the group's adequate response to Covid-19. SIIPL has diverse product offerings in vaccine segment, including the Covid-19 vaccine 'Covishield'.

The ratings are constrained due to PFL's relatively modest scale of operations at present due to erstwhile MFL's inability to grow due to impact of Covid-19, challenges in raising equity/debt capital and high cost of funds. The ratings are also constrained by PFL's moderately diversified resource profile as of March 2021, and elevated asset quality parameters as of March 2021.

The ability of the company to execute its business plan and grow the loan book from focused products while achieving the envisaged asset quality and profitability parameters, maintaining healthy capitalization, and diversifying its liability mix will be a key rating monitorable. However, the downside risks to the business plan are likely to be mitigated by strong parentage, large equity base and low leverage along with a professional management team.

Shares of Poonawalla Fincorp Limited was last trading in BSE at Rs. 284.65 as compared to the previous close of Rs. 266.85. The total number of shares traded during the day was 627074 in over 10836 trades.

The stock hit an intraday high of Rs. 286.65 and intraday low of 266.50. The net turnover during the day was Rs. 175227426.00.

Source : Equity Bulls

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PoonawallaFincorp INE511C01022 RatingUpdate