Rationale

 The ratings factor in Vivriti Capital Limited’s (VCL) adequate capitalisation profile with a managed gearing of 3.5 times as of September 2024 (3.8 times as of March 2024) along with the adequate earnings performance. The profitability1 (profit after tax/average managed assets; PAT/AMA) improved to 2.3% in H1 FY2025 as well as FY2024 from 2.2% in FY2023, supported by higher interest margins and controlled credit costs. ICRA expects the company’s overall earnings to remain sufficient in the near-to-medium term, though the interest margins could face pressure in the near term due to the competitive environment. VCL has raised Rs. 1,399 crore of capital since its incorporation in 2018, which has helped keep the capital profile under control even as the assets under management (AUM) expanded at a high rate in the past. However, the scale-up slowed down in H1 FY2025, with AUM of Rs. 8,285 crore as of September 2024 vis-à-vis Rs. 8,071 crore as of March 2024, owing to market conditions. While VCL is looking to increase its AUM at a compound annual growth rate (CAGR) of 20-25% over the next three years, it will have to raise capital regularly to keep its managed gearing below 4.5 times. The ratings also consider VCL’s exposure to borrowers with a moderate risk profile, largely comprising small and mid-sized non-banking financial companies (NBFCs) and enterprises (other than financial sector entities). ICRA notes that portfolio concentration has moderated with the top 20 exposures reducing to 12% of the AUM as of March 2024 from 20% as of March 2023 (25% in March 2022). This is expected to decline further, going forward. The gross stage 3 (GS3) increased to 1.8% as of September 20242 from 1.1% as of March 2024 mainly due to the change in the reporting of delinquencies in the colending/partnership segment, following the revised digital lending guidelines. ICRA takes note of VCL’s exposure to a corporate account, which is going through some stress3 , though this is not expected to impact its overall risk profile. ICRA notes that VCL’s board of directors had approved a composite scheme of arrangement (proposed scheme) in June 2024, between the company, Hari and Company Investments Madras Private Limited (HCIMPL), Vivriti Next Private Limited (VNPL), Vivriti Asset Management Private Limited {VAM; VCL’s subsidiary operating as an asset management company (AMC)}, Vivriti Funds Private Limited (VFPL) and their respective shareholders. As per the proposed scheme, the Vivriti Group is separating the online platform business without any shareholding linkages with its NBFC and AMC businesses. Nevertheless, the demerged NBFC and AMC businesses would become wholly-owned subsidiaries of VNPL, following the implementation of the proposed scheme. ICRA is of the view that the credit profile of the demerged NBFC business would remain unchanged as a result of the implementation of the proposed scheme. The proposed scheme is subject to National Company Law Tribunal approval. The Stable outlook reflects ICRA’s opinion that the company would continue to benefit from its established clientele and partnerships in the financial sector, coupled with its stable underwriting and risk management practices and its adequate capitalisation, which would help maintain its performance over the near-to-medium term.