ASA International India Microfinance Limited

December 21, 2017

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]BBB- (Stable);
Term Loan 450.00 450.00
Reaffirmed
Non-Convertible Debenture [ICRA]BBB- (Stable);
52.50 52.50
Programme Reaffirmed
Non-Convertible Debenture [ICRA]BBB- (Stable);
0.00 45.00
Programme Assigned
Total 502.50 547.50

Rating action
ICRA has assigned a rating of [ICRA]BBB- (pronounced ICRA triple B minus) for the Rs. 45.00 crore non-convertible
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debenture programme of ASA International India Microfinance Ltd. (ASA) . ICRA also has reaffirmed the rating of
[ICRA]BBB- for the Rs. 450.00 crore term loans and the Rs. 52.50 crore non-convertible debenture programme of the
company. The outlook on the long term rating is Stable.

Rationale
The rating factors in ASA’s experienced management team; the technical and managerial support from its promoters
(ASA International and ASA Bangladesh) and equity partner IDFC Bank (which held a 9.99% stake as on September 30,
2017); its robust systems and processes for loan monitoring and collections; and good profitability indicators (ROE of
32.5% in H1 FY2018). The company’s portfolio registered a robust annualised growth of about 118% during H1FY2018
from Rs. 351.52 crore as on March 31, 2017 to Rs. 558.78 as on September 30, 2017. Overall, ASA’s asset quality
remained good with 0+ dpd at 3.41% as on September 30, 2017 (without the Reserve Bank of India dispensation).

The rating is constrained by the company’s moderate scale and geographically concentrated operations with 72% of the
portfolio as on September 30, 2017 being in West Bengal and the top 20 districts accounting for 82% of the portfolio. The
rating also takes into account ASA’s stretched capitalisation indicators with gearing (including off-book portfolio) of 8.32
times as on September 30, 2017, reflecting the debt funded growth over the past few years. ICRA notes that ASA’s loans
are individual exposures without any group guarantees, in line with the ASA methodology worldwide. ICRA also notes
that the company is yet to receive an NBFC-MFI licence and is waiting for the RBI approval of its application.

Outlook: Stable
ICRA believes that ASA will continue to receive technical, managerial support and capital support from its parents (ASA
International and ASA Bangladesh). The outlook may be revised to Positive if a substantial improvement in capital
structure strengthens the company’s financial risk profile. The outlook may be revised to Negative in case of
deterioration in the capitalisation profile or in asset quality indicators.

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For complete rating scale and definitions, please refer to ICRA’s website (www.icra.in) or other ICRA rating publications

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Key rating drivers

Credit strengths

Good asset quality indicators- ASA’s 90+ delienquencs as on September 30, 2017 were better than that of its peers
owing to the limited share of the company’s portfolio in affected areas. The company’s overall asset quality however was
impacted by demonetisation and the floods in the north-eastern states of India as reflected by the 30+ dpd rising to
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2.35% as on September 30, 2017 from 0.10% as on September 30, 2016. ASA’s ability to maintain prudent lending
policies while growing at the envisaged pace will be a key monitorable.

Demonstrated ability to manage funding- ASA’s disbursements increased after demonetisation supported by continued
funding from its lenders. ICRA draws comfort from the company’s demonstrated ability to access funding from lenders,
including its equity partner IDFC Bank, IFMR, Hinduja Leyland, Capital First, Developing World Markets, Mahindra
Finance, State Bank of India etc.

Improved profitability indicators in H1FY2018- In H1FY2018, ASA reported net profits of Rs. 9.94 crore (Rs. 3.8 crore in
FY2017) on a total asset base Rs. 478.3 crore as on September 30, 2017 (Rs. 327.0 crore as on March 31, 2017). The
company’s net interest margin/AMA increased from 9.9% in FY2017 to 11.4% in H1FY2018 on account of lower cost of
funds (weighted average cost of borrowing declined from 14.3% as on March 31, 2017 to 13.9% as on September 30,
2017), high growth in loan portfolio and seasoning of the loan portfolio as higher disbursements came in during Q1
FY2018. The improvement in net interest margins was also supported by higher yield on average investments at 9.76%
during H1FY2018 from 3.99% during FY2017 mainly driven by high growth in investments from Rs. 0.01 crore as on
March 31, 2017 to Rs. 25.15 crore as on September 30, 2017. The company’s operating expenses declined in H1FY2018
with to 5.1% of AMA from 6.4% in FY2017 supported by an increase in portfolio per branch from Rs. 2.60 crore as on
March 31, 2017 to Rs. 3.17 crore as on September 30, 2017. Overall, the company’s PAT/AMA increased to 3.6% in
H1FY2018 from 1.6% in FY2017. Higher profitability coupled with higher leveraging led to sharp increase in return on
equity from 8.7% in FY2017 to 32.2% in H1 FY2018.

Technical and managerial support from parents- ASA receives technical support from ASA International and ASA
Bangladesh. Of the eight members on its Board of Directors, four are from ASA International. ASA uses the ASA
Microfinance Management System, a proprietary software developed in house by ASA International, for its operations.

Experienced board and management team and good systems to support growth- ASA has an experienced management
team with functional heads supervising the key areas and operations of the company. ASA’s operational software
captures micro level borrower data and is integrated with its financial accounting software.

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Without considering the RBI dispensation

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Credit challenges

Geographical concentration risk- Notwithstanding a steady increase in the share of portfolio in other states, the
company’s concentration risk remains high with 72% of the portfolio as on September 30, 2017 concentrated in West
Bengal. Further, the top 20 districts accounted for 84% of the portfolio as on September 30, 2017. ICRA takes note of the
management’s efforts to diversify into other states. The company started its operations in Meghalaya in June 2017.

Moderate capitalisaiton; higher incremental capital requirements- ASA’s gearing (including off-book portfolio) is high at
8.32 times as on September 30, 2017. ASA’s total portfolio grew by 59% in H1FY2018 from Rs. 351.52 crore as on March
31, 2017 to Rs. 558.78 crore as on September 30, 2017. ICRA notes the company’s plans for a significant portfolio
growth of around 100% annually in the medium term. Going forward, the company’s ability to raise adequate equity and
maintain capitalisation at prudent levels, will be critical for its credit profile.

Limited financial flexibility owing to dependence on FIs/NBFCs- ASA has funding relationships with 14 lenders with
around 73% of the borrowings as on September 30, 2017 being from NBFCs and around 27% from banks. However, in
the last few months the company has secured funding lines from new lenders like NABARD Financial Services
Manappuram Financial Services Limited, Fincare, Developing World Markets, State Bank of India, Mahindra Finance etc.
Going forward, the company’s ability to diversify its funding base and reduce its cost of funds would be important from
the rating perspective.

Marginal borrower profile – The marginal borrower profile, and the political and operational risks associated with micro
lending may result in high volatility in asset quality indicators. Political, communal, overleveraging and other risks in its
portfolio and across geographies of operations will remain key sensitivities.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

ICRA’s Credit Rating Methodology for Non-Banking Finance Companies

About the company:

ASA International India Microfinance Limited (ASA, formerly Dilkusha Hire Purchase Pvt. Ltd, DHPPL) is an indirect
subsidiary of ASA International. The latter acquired the entire share capital of DHPPL in June 2008 and renamed the
entity as ASA. Subsequently, ASA International infused equity of $7.5 million (around Rs.31.5 crore) into ASA. As per the
share purchase agreement, all assets and liabilities except share capital and bank balances were retained by the previous
owners. The new management started their microfinance operations in July 2008.

ASA’s lending model is based on individual liability, without any group guarantee mechanism. As on September 30, 2017,
ASA operated through a network of 176 branches, spread over 39 districts of West Bengal, Tripura, Assam, Meghalaya,
Bihar and Uttar Pradesh. Its corporate office is located in Kolkata, West Bengal and registered office in Jalandhar, Punjab.

ASA reported net profits of Rs. 4.79 crore (2.04% of ATA) in FY2017 in comparison with Rs. 2.29 crore (2.14% of ATA) in
FY2016. ASA’s revenues are supported by business correspondent income, which accounted for around 13% of its total
income in FY2017. In H1FY2018, ASA reported net profits of Rs. 9.94 crore on a total asset base Rs. 478.3 crore as on
September 30, 2017.

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Key financial indicators (Audited)
FY2016 FY2017 H1FY20183

Net interest income 15.01 24.03 24.18

Profit before tax 3.68 8.86 16.60
Profit after tax 2.29 4.79 9.94
Portfolio size 134.22 348.84 558.82
Total assets 144.07 326.28 478.31

% Tier 1 38.96% 17.78% 15.24%

% CRAR 38.96% 17.78% 23.23%
Gearing (including off book) 1.87 6.34 8.32

% Net profit/Average managed assets 1.99% 1.58% 3.63%

% Return on net worth 4.87% 8.73% 32.22%

% Gross NPAs 0.06% 8.19% 0.75%

% Net NPAs 0.00% 1.03% 0.24%
Net NPA/Net worth 0.00% 3.85% 1.39%
Amount in Rs. crore

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Provisional

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 Rating history for last three years:
Current Rating Chronology of Rating History for the past 3 years

Amount Amount FY2018 FY2017 FY2016 FY2015

Rated Outstanding December April December July May
Instrument Type (Rs. crore) (Rs. crore) 2017 2017 2016 2016 2016 - -

[ICRA]
BBB- @
[ICRA] [ICRA] (Rating [ICRA] [ICRA]
Term Long
1 450.00 450.00 BBB- BBB- watch BBB- BBB- - -
Loans Term
(stable) (stable) placed (stable) (stable)
with
negative
outlook)

[ICRA] [ICRA]
NCD Long
2 97.50 97.50 BBB- BBB- - - - - -
Programme Term
(stable) (stable)

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
ISIN Date of Issuance Amount Rated Current Rating
Instrument Name Coupon Rate Maturity Date
No / Sanction (Rs. crore) and Outlook
NA Term Loan 1 20/07/2017 - 30/01/2019 34.58 [ICRA]BBB-(stable)
NA Term Loan 2 23/06/2016 - 25/07/2018 5.01 [ICRA]BBB-(stable)
NA Term Loan 3 23/02/2017 - 5/04/2018 18.31 [ICRA]BBB-(stable)
NA Term Loan 4 26/05/2017 - 15/02/2019 85.76 [ICRA]BBB-(stable)
NA Term Loan 5 14/09/2016 - 29/09/2018 4.63 [ICRA]BBB-(stable)
NA Term Loan 6 09/05/2017 - 17/05/2020 45 [ICRA]BBB-(stable)
NA Term Loan 7 10/12/2017 - 13/12/2018 58.18 [ICRA]BBB-(stable)
NA Term Loan 8 17/02/2017 - 13/03/2019 8.75 [ICRA]BBB-(stable)
NA Term Loan 9 24/05/2017 - 8/05/2019 8.71 [ICRA]BBB-(stable)
NA Term Loan 10 31/03/2017 - 31/07/2020 10 [ICRA]BBB-(stable)
NA Term Loan 11 14/06/2017 - 12/10/2019 4.81 [ICRA]BBB-(stable)
NA Term Loan 12 31/03/2017 - 30/03/2020 18.33 [ICRA]BBB-(stable)
NA Proposed - - - 147.93 [ICRA]BBB-(stable)
NA NCD 1 31/03/2017 12.64% 30/03/2020 20.00 [ICRA]BBB-(stable)
NA NCD 2 06/10/2017 14.00% 06/11/2020 32.50 [ICRA]BBB-(stable)
NA NCD 3 27/12/2017 13.10% 27/12/2022 45.00 [ICRA]BBB-(stable)

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ANALYST CONTACTS

Karthik Srinivasan Pritam Karmakar

+91 22 6114 3444 +91-33-71501189
karthiks@icraindia.com pritam.karmakar@icraindia.com

Supreeta Nijjar
+91-124-4545324
supreetan@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
naznin.prodhani@icraindia.com

Helpline for business queries:

+91-124-3341580 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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