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Credit Rating
Rating Rationale
March 30, 2017 | Mumbai
PKF Finance Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.10 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
 
Fixed Deposits FA-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the long-term bank facility and fixed deposits of PKF Finance Limited (PKF Finance; part of the PKF group) at 'CRISIL BBB-/FA-/Stable'. The ratings continue to reflect the extensive experience of the group's management in asset financing business. The promoters have been in the asset finance business for over 6 decades. The ratings also reflect adequate capital position, reflected in networth of Rs 53 crore and gearing of 2.9 times as on December 31, 2016.

However, asset quality is average as seen in 90+ days past due (dpd) of 9.5% as on December 31, 2016 (11.5% as on March 31, 2016). Moreover, operations remain relatively small despite longstanding presence. Portfolio stood at Rs 186 crore as on December 31, 2016 (Rs 159 crore as on March 31, 2016).

Analytical Approach

The PKF group comprises five companies: PKF Finance, Punjab Kashmir Finance, Punjab Reliable Investments Pvt Ltd, Reliable Aggro Engineering Services Pvt Ltd, and PKF Securities Ltd. For arriving at the ratings, CRISIL has combined the financial and business risk profiles of all the group entities because of their high level of business integration and common promoter.

Key Rating Drivers & Detailed Description
Strengths
* Extensive experience of promoters and longstanding presence
Managing director, Mr. Alok Sondhi, and joint managing director, Mr. Vivek Sondhi, have been in the asset financing business for more than 35 years. The group has been engaged in the business for almost 60 years and has passed through several economic cycles. It has maintained a strong brand in Punjab, Delhi, Haryana, and Chandigarh and competes with banks and other large non-banking financial companies (NBFCs).
 
* Adequate capital position
Consolidated networth was Rs 53 crore and overall capital adequacy ratio 25% as on December 31, 2016. Overall gearing was also comfortable at 2.9 times and has remained below 4 times over the past seven years. Furthermore, the group infused additional equity of Rs 4 crore during fiscal 2016, which not only strengthened capital positon but also ensured the group is compliant with revised RBI norms of maintaining deposits at below 1.5 times of networth. Given moderate growth plans, gearing is expected to remain steady over the medium term.
 
Weaknesses
* Average asset quality
Gross non-performing advances (NPAs) increased to 4.2% as on December 31, 2016, from 2.5% as on March 31, 2015, due to adherence to revised asset recognition norms by RBI; starting April 1, 2016, the group is recognising gross NPAs at 150+ dpd. In addition, CRISIL believes the group's gross NPA will increase further by another 150-200 basis points by March 2017 due to revision in NPA recognition to 120 dpd from 150 dpd. The 90+dpd at 9.5% as on December 31, 2016, remains high, though it has improved from 11.5% as on March 31, 2016. Impact of demonetisation on the asset quality is expected to be limited as a large proportion of borrowers have longstanding relationship with the group. Ability to improve asset quality over the medium term will, nevertheless, remain a key rating sensitivity factor.
 
* Small scale of operations with regional concentration 
PKF group's scale of operations is small and geographically concentrated in the northern states of Punjab, Delhi, Haryana and Chandigarh. Despite being in operations for six decades, the group remains a small player with an advance book of Rs 186 crore as on December 31, 2016, and a network of 11 branches, the group remains a small player in the industry. Though the group intends to increase in operations over the medium term, the group is likely to remain a relatively small retail financing player with regional focus, over the medium term.
Outlook: Stable

CRISIL believes the PKF group will continue to benefit over the medium term from the extensive experience of its promoters and maintain adequate capitalisation over the medium term. The outlook may be revised to 'Positive' in case of increase in scale of operations and substantial improvement in profitability, while maintaining asset quality. The outlook may be revised to 'Negative' if substantial weakening in asset quality or earnings lead to deterioration in capitalisation.

About the Group

Punjab Kashmir Finance, the flagship company of the PKF group, was established by Mr. Balbir Raj Sondhi in 1958 to provide loans for purchasing commercial vehicles. Apart from commercial vehicle financing, the group has also diversified into financing passenger cars, earthmoving equipment, medical equipment, and industrial and other machinery in recent years. The group also extends business loans to well-known corporate entities or their promoters; the loans are secured against property. The group has operations in Punjab, Delhi, Haryana, and Chandigarh. Its total outstanding loan portfolio was around Rs 186 crore as on December 31, 2016. The group disbursed loans of Rs 87.3 crore during first 9 months of fiscal 2017.
 
The PKF group reported a net profit of Rs 4.6 crore on a total income of Rs 29.7 crore during fiscal 2016, compared to a net profit of Rs 5.7 crore on a total income of Rs 30.4 crore in fiscal 2015. For the nine months ended December 2016, net profit was Rs 3.2 crore on total income of Rs 23.6 crore.
 
PKF Finance, established in 1994, is a small, regional NBFC. In addition to financing commercial vehicles, it extends loans to corporate entities and for hire-purchase of cars, and earth-moving and medical equipment.
 
PKF Finance reported a net profit of Rs 1.5 crore on a total income of Rs 10.7 crore during fiscal 2016, compared with a net profit of Rs 1.7 crore on a total income of Rs 11.0 crore for fiscal 2015. For the nine months ended December 2016, net profit was Rs 1.3 crore on a total income of Rs 8.8 crore.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)
Maturity Date Issue Size
(Rs. crore)
Rating Assigned  with Outlook
NA Cash Credit NA NA NA 10 CRISIL BBB-/Stable
NA Fixed Deposits NA NA NA 0 FA-/Stable
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD  FA-/Stable    No Rating Change  01-04-16  FA-/Stable    No Rating Change    No Rating Change  FA-/Negative 
Fund-based Bank Facilities  LT/ST  10  CRISIL BBB-/Stable    No Rating Change  01-04-16  CRISIL BBB-/Stable    No Rating Change    No Rating Change  CRISIL BBB-/Negative 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 10 CRISIL BBB-/Stable Cash Credit 10 CRISIL BBB-/Stable
Total 10 -- Total 10 --