RATING RATIONALE 7 Sept 2020 Arthimpact Digital Loans Private Limited

Brickwork Ratings assigns ‘BWR BBB-’/Stable to the bank loan facilities of Arthimpact Digital Loans Private Limited

Particulars

Facility ** Amount (₹ Cr) Tenure Rating*

BWR BBB-/ Stable Fund based (bank facilities) 8.00 Long Term (Assigned)

Total 8.00 Rupees Eight Crores Only

*Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ​ ​ ** Details of bank facilities are provided in Annexure I.

RATING ACTION / OUTLOOK Brickwork Ratings (BWR) assigns ‘BWR BBB-’/Stable to the bank loan facilities of Arthimpact Digital Loans Private Limited (ARTH or the company), as tabulated above. The rating factors in experienced promoters and management, an established tie-up with sourcing partners with the first loss sharing arrangement and fully digitised loan origination and management system. The rating is, however, constrained by the small scale of operations with a limited track record and low capitalisation.

KEY RATING DRIVERS

Credit Strengths

Experienced promoters and management: The company was promoted by Mr. Manish Khera and Ms. Shweta Aprameya, both having vast experience in fintech and digital finance. Mr. Manish Khera, who currently holds 91.19% in ARTH, has been an impact investor and was the managing director and chief executive officer of FINO Paytech Limited and Airtel Payments Bank. Ms. Shweta Aprameya, who currently holds 8.81% in ARTH, has fifteen years of experience in fintech and digital access to finance. She has served as a digital finance advisor to International Finance Corporation (IFC) clients in Sri Lanka and India and was the founding team member of Airtel Payments Bank.

Established tie-up with sourcing partners: The company partners with entities such as ​ PayTM, Spicemoney, Mswipe, Payworld and Wiezemen, and focuses on providing short-term, high-yielding, revolving unsecured business loans. The company has tied-up with these partners to offer loans to merchants, sellers and suppliers, using the payment platforms of its sourcing

www.brickworkratings.com Page 1 of 6 ​ ​ ​ partners. The company has cumulatively disbursed over Rs 180 Crs until July 2020 to over 2 lakh micro entrepreneurs across 500 cities pan-India. The company has entered into a revenue sharing arrangement with these partners, wherein the sourcing partners get a sourcing fee and a collection/service fee for loans sourced through its platform and which is based on the efforts put in by the sourcing partners towards collections; the same is adjusted for any losses arising in the portfolio, thereby minimising the risk for the company. On a cumulative disbursement of Rs 180 Crs, the company has received around Rs 11 Crs as a cover for losses from its sourcing partners, which is equivalent to 6% of the loans disbursed. BWR believes the asset-side risks are minimised under this arrangement, and it also helps ARTH scale-up its lending portfolio through these sourcing tie-ups.

Sound technology platform: Lending products are designed based on direct customer ​ engagements and by using advanced data and analytics. The credit appraisal is done by analysing the volumes of sales transactions done on the various digital platforms, by using a public system API and by integrating directly with partner system networks. The company also uses escrow and wallet accounts for daily repayments.

Credit Risks

Small scale of operations with limited track record: The company started operations in ​ January 2018 and has a limited track record. The scale of operations is also small, with the total assets under management (AUM) of Rs 51.54 Crs as on 31 July 2020. Since the loans are short-term and revolving in nature, the portfolio churn is relatively high. The company’s ability to scale-up its lending portfolio is a key rating monitorable. The company has an average resource profile. The borrowing is largely supported by cash credit limits sanctioned by the bank against fixed deposits placed by its sourcing partner. The company’s ability to raise borrowings from multiple sources is monitorable.

Low capitalisation: The company had a net worth of Rs 7.82 Crs as on 31 March 2020. The ​ company also has tier II capital of Rs 11.07 Crs. The gearing stood at 4.18 times, and adjusted gearing (including tier II capital as part of net worth) at 1.15 times as on 31 March 2020. The company is planning to raise equity capital of Rs 25 Crs during FY21. BWR believes that the proposed equity infusion will be critical to improve the company’s capital position and for future growth prospects. Currently, the gross non-performing assets are Nil, considering the first loss sharing arrangements with its sourcing partners.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA For arriving at its ratings, BWR has considered ARTH’s standalone performance. BWR has applied its rating methodology as detailed in the rating criteria (hyperlinks provided at the end of this rationale).

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RATING SENSITIVITIES Going forward, the company’s ability to show considerable growth in its loan portfolio, while maintaining asset quality, profitability and adequate liquidity will be a key rating sensitivity factor.

Positive: The company’s ability to show considerable growth in its loan portfolio, while ​ maintaining asset quality, profitability and a prudent capital structure is a key rating positive. Negative: Lower-than-expected growth in the loan portfolio through sourcing tie-ups or a ​ deterioration in the asset quality and capital structure are key rating negatives.

LIQUIDITY POSITION: ADEQUATE The company mainly offers short-term loans of upto 1 year. A large portion of the company’s borrowing is in the form of a cash credit facility, which is revolving in nature. This results in a favourable ALM position for the company. The company has total debt repayments of ~ Rs 8.00 Crs between September 2020 to March 2021. Against this, the company has scheduled collections of Rs 132 Crs during the same period. Even after sensitising collections, the company has adequate liquidity to meet its debt obligations. The company also had fixed deposits of Rs 1.50 Crs as on 31 July 2020.

Coronavirus disease (COVID-19), declared a pandemic by the World Health Organisation (WHO), has become a full-blown crisis globally, including in India. As a containment measure, the Indian Government had announced a 21-day nationwide lockdown on 24 March 2020, which was subsequently extended until 31 May 2020. As per BWR, financial institutions, mainly those lending directly or indirectly to retail low-income borrower segments could be the most impacted. The 6-month moratorium announced by the Reserve Bank of India on the interest and principal on bank debt has provided some cushion to the lending community to realign its collection machinery and operations during this period. However, lenders' ability to ensure credit discipline among borrowers as the 6-month moratorium ends and to collect accumulated interest and principal dues on a timely basis after this period will be a key monitorable. BWR is actively engaging with its clients on a continuous basis and taking updates on the impact on its operations and liquidity situation. BWR will take appropriate rating actions as and when it deems necessary and publish the same.

COMPANY PROFILE Arthimpact Digital Loans Private Limited (ARTH) is a fintech non-banking finance company (NBFC) that was initially incorporated as IFMR Mezzanine Finance Private Limited in April 1996. The current promoters bought the NBFC and renamed it as Arthimpact Digital Loans Private Limited in 2018. The company commenced business operations on 5 January 2018. It mainly provides micro-credit to MSMEs.

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KEY FINANCIAL INDICATORS Key Parameters Units FY19 FY20 Result Type Audited Audited

Total Income (in ₹ Cr) 5.56 16.49 Net Profit (in ₹ Cr) 0.03 0.58 Net Worth (in ₹ Cr) 7.24 7.82 Gearing (in times) 4.15 4.18 Total CRAR (%) 39.00 43.84

Total Assets (in ₹ Cr) 38.18 43.72 Total AUM (in ₹ Cr) 34.44 20.86 Gross NPA (%) 8.68 Nil Net NPA (%) 7.81 Nil

KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED: NA

NON-COOPERATION WITH PREVIOUS RATING AGENCY, IF ANY: NA

RATING HISTORY FOR THE PREVIOUS THREE YEARS (Including withdrawal & suspended)

Facilities Current Rating Rating History for the past 3 years

Tenure Amount (Long Term/ Rating 2019 2018 2017 ( Cr) Short Term) ₹ Fund based BWR BBB-/ Long Term 8.00 NA NA NA (bank Stable facilities) Total 8.00 Rupees Eight Crores Only

COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf ​

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Hyperlink/Reference to applicable Criteria: ● General Criteria ● Banks & Financial Institutions

Analytical Contacts Investor and Media Relations

Nirav Shah Senior Analyst - Ratings +91 22 6745 6623 [email protected] Liena Thakur ​ Assistant Vice President - Corporate Communications +91 84339 94686 Vydianathan Ramaswamy [email protected] Director & Head - Financial Sector Ratings +91 22 6745 6660 [email protected]

Arthimpact Digital Loans Private Limited

ANNEXURE I - Details of Bank Facilities rated by BWR Sl. Name of the Bank Type of Long Term Short Term Total # (Rs in No. Facilities (Rs in Crs) (Rs in Crs) Crs)

1 Proposed Term Loan 8.00 -- 8.00

Total limits rated 8.00 -- 8.00

Rupees Eight Crores Only

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About Brickwork Ratings : Brickwork Ratings (BWR), a Securities and Exchange Board of India [SEBI] ​ registered Credit Rating Agency and accredited by Reserve Bank of India [RBI], offers credit ratings of Bank Loan, Non- convertible / convertible / partially convertible debentures and other capital market instruments and bonds, Commercial Paper, perpetual bonds, asset-backed and mortgage-backed securities, partial guarantees and other structured / credit enhanced debt instruments, Security Receipts, Securitisation Products, Municipal Bonds, etc. BWR has rated over 11,400 medium and large corporates and financial institutions’ instruments. BWR has also rated NGOs, Educational Institutions, Hospitals, Real Estate Developers, Urban Local Bodies and Municipal Corporations. BWR has Canara Bank, a leading public sector bank, as one of the promoters and strategic partners. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.

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