Chemmanur Credits and Investments Limited NCD: Review and Should you invest?

7 min read • Updated 8 January 2023
Written by Vinit Kulkarni
Chemmanur Credits and Investments Limited

Chemmanur Credits and Investments Ltd has launched its public issue of NCDs to mobilise funds from the debt market. Read further to know more about the business of Chemmanur Credits and Investments Ltd

About the Chemmanur Credits and Investments Limited

Chemmanur is a non-deposit taking, non-banking financial company (base layer) registered with the RBI bearing registration no. N-16-00185 dated June 10, 2010 under Section 45-IA of the RBI Act primarily engaged in the gold loan sector where it lends money against the pledge of gold jewellery/ornaments (“Gold Loans”) in the state of Kerala, Tamil Nadu and Karnataka. It also provides Microfinance Loans, business and personal loans, money transfer services and distribution of third-party insurance products. It is engaged in the lending business for more than 11 years and are based in Kerala, India. As of September 30, 2022, they operated through 161 branches located across 3 states namely Kerala, Tamil Nadu & Karnataka managed through their registered office located at Thrissur, Kerala and employ 881 people for their business operations.

About the Group

Chemmanur is a part of Boby Chemmanur Group which is engaged in diverse businesses and is based in Kerala, India. The group has retail gold jewellery showrooms in USA and Middle East apart from those in India. The Boby Chemmanur Group has received BIS certification for purity of gold. The group’s promoter is Chemmanur Devassykutty Boby popularly known as Boby Chemmanur, the Chairman and Managing Director of Chemmanur Credits and Investments Ltd. Currently, Chemmanur offer various Gold Loan schemes to suit the individual needs of their customers for tenure ranging up to 180 days. The schemes differ in relation to interest rate chargeable, amount advanced per gram of gold, tenure, amount of loan.

The promoter has expanded the family-run business of more than 150 years of retail gold jewellery. Chemmanur Devassykutty Boby, under the Boby Chemmanur group, has branches in USA and Middle East apart from those in India and has interests in various other fields such as Finance, Chits, Super Market, Real Estate, Builders and Developers, E-Commerce, Holiday Resorts, Holiday Timeshare/Vacation Ownership etc.

Industry Outlook/Overview

Gold is one of the most valued assets for the households in India, not just financially but emotionally as well. Most of the gold in India is held by people in rural market. Rural residents and low-income groups are the major customers of gold loans, as gold is usually the only asset they possess, in some quantity. They also typically lack access to banking facilities. Thus, gold loan has emerged as one of the most reliable credit sources for these categories of customers at a broader level. There are mainly two categories of gold loan providers:

  1. Formal sector (Banks, NBFCs and cooperatives)
  2. Informal sector (local moneylenders)

The demand for gold has a regional bias with southern Indian states accounting for around 40.0% of the annual demand. There is potential to expand gold loans market to the Northern and Western regions of India, provided the branch network is expanded and the loans are available with ease and with flexible options. Many Gold loan companies are reducing their geographical concentration risk and gradually shifting their focus to northern and western region over the last 3 years.

As per WGC report, the organized gold loan industry in India is around 35% and unorganized industry is around 65%. The total gold loan industry AUM stood at INR 11,57,400 crs in FY21, out of which approximately 35% valuing INR 4,05,100 crs accounted for organised market.

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Financial Performance of Chemmanur Credits and Investments Limited

ParticularsQ1FY23FY22FY21FY20
Net Worth        88.57         88.05         87.93         78.69 
Borrowings    255.67     262.24     259.67     235.85 
AUM    340.33     355.08     341.38     299.95 
PAT          0.52           4.31           9.24           8.50 
PAT margin2.86%5.88%12.36%11.81%
GNPA0.94%1.08%0.68%0.33%
NNPA0.70%0.86%0.50%0.18%
Debt to Equity          2.89           2.98           2.95           3.00 
CRAR36.73%35.08%34.77%35.39%
Tier I24.33%23.23%23.03%23.44%
Tier II12.40%11.85%11.74%11.95%

*The company is adequately capitalised with CRAR of 36.73% and debt to equity ratio of 2.89x as of June 30, 2022. However, the company’s management has indicated that it will maintain a steady state gearing of 5x. Post issue of this offer, the gearing is expected to be 4.02x. Though the company has been reporting profits for the last 3 Financial years, it has shown a declining trend during the same period which is evident in the declining PAT margin over the last 15 months. The company’s GNPA, NNPA numbers are under control as it has been able to recover losses through regular auctioning of the pledged gold.

Borrowings (as of June 2022):

Top 3 lenders:

LenderAmount o/s (Rs in crs)% of total borrowings
SBI                                  23.20 9.08%
Canara Bank                                    9.16 3.58%
Dhanalaxmi bank                                    3.30 1.29%

Nature of Borrowings:

Nature of BorrowingsQ1FY23FY22FY21FY20
Secured        79.01         89.47         94.51     102.96 
Unsecured    176.66     172.77     165.17     132.89 

Type of Borrowings:

Type of borrowingQ1FY23FY22FY21FY20
Bank Borrowings        35.66         39.24         27.67         25.18 
Debt Securities        43.35         50.23         67.42         77.99 
Subordinated Debt    176.67     172.78     164.60     132.69 

Peer Comparison

ParticularsChemmanurMuthoot FinanceManappuram Finance
AUM (Rs in crs)                  340                       56,177                               30,759 
GNPA0.94%2.99%1.43%
NNPA0.70%2.68%1.25%
Net Worth (Rs in crs)                    89                       18,345                                   8,159 
Debt to Equity                2.89                           2.48                                     2.22 
PAT (Rs in crs)                0.52                       802.00                               290.12 
PAT margin2.86%31.96%26.13%
CRAR36.73%29.97%31.45%
Rating AgencyChemmanurMuthoot FinanceManappuram Finance
CRISILBBB-/StableAA+/StableAA/Stable
ICRANot ratedAA+/StableNot rated
CARENot ratedNot ratedAA/Stable

Credit Rating

YearSep-17Dec-18Mar-20May-20Aug-20Nov-21Aug-22
RatingBBB-/StableBBB-/StableBBB-/StableBBB-/Watch NegativeBBB-/StableBBB-/NegativeBBB-/Stable

Conclusion

Comforts:

  • Adequate capitalisation with CRAR at ~37% as of June 2022
  • Continued support from the promoters in the form of equity infusion
  • Comfortable asset quality with NPAs below 1% as of June 2022
  • Majority of the portfolio backed by gold

Concerns:

  • Regional Concentration of portfolio with 87% of the portfolio originated in Kerala and 13% in Tamil Nadu as of 31st March 2022
  • Less diversified borrowing profile with 85%-90% debt raised from privately placed NCDs and Subordinated Debt
  • Declining profit margins over last 15 months
  • Relatively small scale of operations compared to peers

Was this helpful?

Vinit Kulkarni

Credit Principal
CA with experience in Credit and Risk, has underwritten loan book of 500Cr+. Previously worked at Essel Finance and Western Capital.

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