India's FINO Rated at 'Fitch BBB(ind)'
13 Oct 2011
National Long-Term Rating
'Fitch BBB(ind)'
INR250m term loan facility(including INR100m of letter of credit)
'Fitch BBB(ind)'/'Fitch A2(ind)'
INR400m cash credit facility (including INR200m of bank
guarantee)
'Fitch BBB(ind)'/'Fitch A2(ind)'
INR400m fund-based facility (including various non-fund based
facilities)
'Fitch BBB(ind)'/'Fitch A2(ind)'
INR150m fund-based facility (including INR100m non-fund
based facility)
'Fitch BBB(ind)'/'Fitch A2(ind)'
INR100m term loan facility
'Fitch BBB(ind)'/'Fitch A2(ind)'
Fitch Ratings-Mumbai-13 October 2011: Fitch Ratings has assigned India-based Financial
Inclusion Network and Operations Ltd (FINO) a National Long-Term rating of 'Fitch BBB(ind)' with
a Stable Outlook. Fitch has also taken the following rating actions on FINO's bank facilities:
-INR250m term loan facility (including INR100m of letter of credit): assigned 'Fitch BBB(ind)'/'Fitch
A2(ind)'
-INR400m cash credit facility (including INR200m of bank guarantee): assigned 'Fitch
BBB(ind)'/'Fitch A2(ind)'
-INR400m fund-based facility (including various non-fund based facilities): assigned 'Fitch
BBB(ind)'/'Fitch A2(ind)'
-INR150m fund-based facility (including INR100m non-fund based facility): assigned 'Fitch
BBB(ind)'/'Fitch A2(ind)'
-INR100m term loan facility: assigned 'Fitch BBB(ind)'/'Fitch A2(ind)'
The ratings are based on a consolidated view of FINO, its subsidiaries and group company FINO
Fintech Foundation. The ratings reflect the company's current strong liquidity position post the
INR1,500m investment by Blackstone GPV Capital Partners (Mauritius) VI-B FDI Ltd (Blackstone)
in July 2011, the high growth potential of India's financial IT services industry and the market
leadership enjoyed by the company. The ratings also factor in FINO's ability to offer a wide range
of last-mile services relating to banking, insurance, government services and retail across India,
based on its technology as well as its nationwide network of 20,000 business correspondents
(BCs).
Over the past four years, FINO had received large foreign direct investments, including
INR2,440m through preference shares in three tranches. Based on its criteria "Treatment of
Hybrids in Corporate and REIT Credit Analysis", Fitch has considered INR240m Class A &
INR700m Class B preference shares as debt, and provided 50% equity credit to INR1.5bn Class
C preference shares. Fitch expects FINO to report a sharp increase in revenues in the financial
year ending March 2012 given the expansion of its network of BCs in the past 12 months and
increased number of services offered. In Fitch's assessment, this is likely to translate into a
concomitant large increase in EBITDAR profits for the year as well as an improvement in
leverage (adjusted debt net of cash/operating EBITDAR) to below 3.5x for FY12 (FY11: 6.79x).
The ratings are constrained by revenue concentration in few clients (the top three clients
accounted for 66.7% of revenues in FY11), significant working capital requirements and expected
moderation in profit margins due to increasing competition and higher operating costs. FINO has
had a stretched receivables position (195 days in FY11) due to payment delays by clients (banks
and government). Its large inventory levels are attributed to stocks of imported smart cards
required to support its business requirements as well as stocks of imported equipment for sale.
With the industry attracting several new entrants, Fitch expects a moderation in the company's
operating margins over the next three to five years.
Increase in scale of operations while maintaining leverage at less than 3.5x through FY13 may
result in positive rating action. Conversely, a slowdown in revenue growth accompanied by
decline in margin contribution from its various business segments may result in negative rating
action. In particular, increase in leverage to over 5.0x or decrease in operating EBITDAR/(gross
interest expense + rent) to less than 1.5x on sustained basis may undermine ratings.
Incorporated in 2006, FINO provides end-to-end technology and operational solutions to banks,
insurance companies and the government to extend their outreach to low-income people who do
not have access to insurance and banking. For FY11, the company reported consolidated
revenues of INR1,862.5m (INR1,002m in FY10), and EBITDA margin of 10.93% (-1.84%).
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated
entities in countries with relatively low international sovereign ratings and where there is demand
for such ratings. National ratings are designed for use mainly by local investors in local markets
and are signified by the addition of an identifier for the country concerned, such as 'AAA (ind)' for
National ratings in India. Specific letter grades are not therefore internationally comparable.
Additional information is available at www.fitchratings.com. The ratings above were solicited by,
or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the
ratings.
Applicable criteria, 'Corporate Rating Methodology', dated 12 August 2011, and 'Treatment of
Hybrids in Corporate and REIT Credit Analysis', dated 11 July 2011, are available at
www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology
Treatment of Hybrids in Corporate and REIT Credit Analysis
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Fitch Ratings currently maintains coverage of approximately 6,000 financial institutions, including
over 3,500 banks and 1,400 insurance companies. Finance & leasing companies, broker-dealers,
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Issued by,
Mihir Mukherjee
Sampark Public Relations
99875 56960