AU Small Finance Bank Ltd (Earlier known of AU Financiers P Ltd) is a Rajasthan based NBFC engaged in retail loans and micro finance in Rajasthan and Maharashtra.
The company diversified in co-lending from pure DSA based business in its early stage, with an intent to capitalize its network established for sourcing on behalf of principals.
NBFC fund raise was a challenge given averseness of Private and PSU Banks to fund NBFCs, particularly recently launched ones.
Post initial fund raise, equity raise has to be initiated for next scale of growth, followed by broad-basing debt raise relationships for subsequent growth.
The company was getting recognized as a leading NBFC in Rajasthan focusing on priority sector lending and it needed to capitalize the same at a quick pace, as other banks and NBFC’s were aggressively eyeing the under penetrated north Indian market.
Ladderup has been working very closely with the top brass of AU Financers over many years, participating in both the debt and equity raises.
It was critical to attract lenders’ & investor attention to the promoters’ intent, capability and experience, derived from professional & DSA experience in the past.
Focus was on establishing credentials in creating sourcing and recovery channel already done in partnership with principals.
Raising initial rounds of equity, with a set of funds more tuned with relatively early stage investing.
Follow-on placements for exiting early stage investors, and getting on-board better pedigreed PE funds.
Broadbasing and improving terms of debt placement, for better cost efficiency and profits, linked to improvement in scale and risk profile.
Ensuring focus on sustainable and cost-efficient finance raise.
Valuation reports for ESOP’ and statutory compliances.
Gini & Jony – Case Study:
Gini & Jony is India’s one of the leading brand & market-leaders in kids wear with and is engaged in manufacturing, distributing and retailing of branded kids wear and accessories, across various channels.
Operating losses on account of high competition, elongated working capital cycle, debt accumulation, which thereby led to constrained liquidity and operating scale.
Creeping rates of interest & rentals, leading to higher fixed outgo.
Unviable stores and lower contribution from new products hurt the company’s bottom line and increased the leverage.
Debt accumulation was significantly higher than underlying value of assets, as also, what could have been sustained from continuing operations. Further, cash-infusion was necessary to revive operations, both from brand and manufacturing standpoint.
Key actions were: Recapitalization through equity:
Identification of immediate liquidity infusion desired for continuing business operations.
Arrangement of Equity from Ladderup’s prop book & co-investors including family offices of renowned BFSI promoters to the extent of Rs 100 crores
Right-sizing & restructuring debt:
Deferment of all term loans for a period of 2 years and ballooning repayment schedule after moratorium, apart from culling non-sustainable portion of debt.
Rear-ended payment of interest on the portion of debt which wasn’t sustainable then.
Reduction in rate of interest,
Fresh term loan for de-bottlenecking and working capital ramp-up, linked to equity raise.
Renegotiated key terms with channel partners for a select group of stores
Advised on to exiting stores that deemed unprofitable and cannot be turn around
Control corporate overheads and conduct employee evaluation and rationalisation
Kisan Mouldings Ltd – Case Study:
Kisan Mouldings Ltd has been a prominent Western India based brand in plastic pipes and fittings, having a meaty presence in states of Maharashtra, Karnataka, Madhya Pradesh & Gujarat over the last 4 decades.
The company undertook a massive expansion spree between 2010-2013, expanding in 4 new locations, leading to debt accumulation, repayments shrinking net-working capital and resultant liquidity situation.
Volatility in base material cost led to reduction in operating margins. This was further compounded by systemic challenges in recovery of debtors on delays in receipt of government subsidy & slowdown in real-estate sector. The above situation led to erosion of NWC, leading to stunted capacity utilization, thereby incapability to service debt in 2013-14.
Ladderup management took-up a board representation in the company with a view to hand-hold the company over its recovery cycle. Key re-capitalization actions were:
Restructuring of debt to the tune of Rs 3.0 Billion as below:
Partial conversion of cash credit limit in to WCTL to ramp up liquidity.
Deferment of all term loans for a period of 2 years and ballooning repayment schedule after moratorium.
Reduction in rate of interest,
Fresh term loan for de-bottlenecking and working capital ramp-up
Private Placement of fresh equity to the extent Rs 97 crores, including participation by Ladderup Finance Ltd to the extent of 10% of the issue size.
This was complimented with cost reduction by consolidation of manufacturing facilities from 9 locations to 5 locations, shifting of machines from closed locations so no reduction in production capacity of the company.
Change in product mix: more focused on high profitable products
Automation of plant & machinery that reduce loss of raw material as well as dependence on manpower.
Centralization – management practices
Centralized Inventory management and debtor management system, which help in reducing inventory and efficient debtor realization.
Purchase department centralized to HO from individual factories to optimize on cost of purchases.
The company realized around Rs. 12-15 crore from sale of assets (land) and utilized proceeds in repayment of overdue LC’s and other overdue creditors thus aid in shoring up its NWC.
Rajvee – Case Study:
The company is a diversified conglomerate based in Gujarat with key businesses including five star hospitality, real estate, logistics and ports.
Hotel property owned by the group was cross-collateralized with working capital and corporate loans of another entity, in a special situation (Corp Guarantee invoked for a disputed PPP project)
Un-entangling the cross-holdings and cross-collateralization for better succession planning & ring-fencing hotel property against unforeseen litigation.
Recapitalization of group Company under special situation to create a war chest to address contingencies.
Cyclicity in the hotel business on account of local factors to be accounted for.
Education – Case Study:
The company is a prominent education gropup in Western India, catering to pre school and K12 segment.
The group had heavily invested in expanding its footprint in the pre-primary and K12 education businesses in Western India, to create a sizeable pre-school- K12 platform.
While the mature part of the business was delivering sustained operating performance and cash-flows, it being a high-gestation business, the recent growth initiatives were consuming cash, leading to marginal profitability on a group-level.
Ballooning maturities of term loans in next 2-3 years, in addition with repayment pressure from high cost privately raised debt nearing maturity, leading to prospective cash-flow issues.
Further, the group needed to complete capex of on-going projects, which were at advanced stage of completion, and needed last-mile finance.
Needed cost-effective solution for its cash-flow issues along with additional funds to complete capex.
With matured businesses having demonstrated growing profitability, track-record of centres breaking even & an efficient business model, Ladderup pitched for refinance with additional funding aggregating to Rs.40 crore based on the cash-flow profile of the group.
Since debt was parked in various group entities, a structure was derived to route cash-flow surpluses from cash-surplus parts to cash-deficient parts, along with cross-collateralized securities.
Lender under-wrote a performing and growing education business with predictable cash-flows, sound collateral backing & promoter profile, while as promoter availed a curated solution matching his business’ cash-flow profile.
Logistics – Case Study:
The client is a leading integrated logistics player in Western India, having presence in 3PL, Cold-chain, ICDs, transport and allied services. It owns an asset heavy business with a block value > Rs.10 Bn, having demonstrated capabilities & established reputation.
Promoter level debt at high-cost without commensurate cash-flows, used for share-holding consolidation in the past, leading to various cash-flow & regulatory issues. Regulatory risks necessitated realigning the debt to operating companies.
Constrained lender appetite on account of recent policy changes in industry severely impacting industry volumes in a part of business.
Worked with the company on re-aligning inter-company transactions, coming up with a full-proof re-financable structure facilitating consolidation of debt at operating companies having commensurate cash-flows.
Identified key differentiators vis-à-vis industry peers, credit merits including reasoning for steady cash-flow profile & marketed the transaction to select group of potential investors having appetite for asset-backed annuity businesses.
Solved lender concerns around COVID impact, relative soundness of businesses, ad sustainability of cash-flows.
Placed in a structure which was not only cost-efficient, but was also significantly elongated, de-bottlenecking fresh-cash-flows for future expansion needs.
Refinancing of existing debt of Rs.260 crore, with an additional raise of Rs.30 crore.