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Published on: April 25, 2023, 10:32 a.m.
For Vivriti Capital, debt’s the way to go
  • Sukumar: ‘We service the M in the MSME class’

By Daksesh Parikh. Executive Editor, Business India

One of the major challenges facing midsized companies is the non-availability of finance. This is especially frustrating when these entities are not able to grow their business for want of funds. Being relatively small in size, no private equity or venture funds will look at them unless they are rated A+ and above. Banks only consider MSMEs or midsized companies (if they consider them at all) and are often not agile enough to give credit when the entities want it.

Realising the opportunity in servicing mid-tier companies Vivriti Capital, a specialised finance company focussing on providing debt to midsized companies, was formed in June 2017. Registered with the RBI as a non-deposit systemically important non-banking finance company, the Chennai based company has disbursed Rs21,000 crore since its inception.

Vineet Sukumar, 46, an IIT engineer from Kharagpur with an MBA degree from Bangalore, and Gaurav Kumar are the founders of the company. Sukumar has more than 17 years of experience in the finance sector having earlier worked in Tata Motors where he was involved in selling trucks to the rural populace. After gaining an understanding of how rural economies worked, he worked with Standard Chartered Bank where he learnt the fundamentals of finance, investment banking, securitisation, debt capital markets as well as fundraising for companies. Even as he was doing well in StanChart, Sukumar thought he had to do something more meaningful in life.

By 2009-10 he took a massive pay cut and joined a start-up, IFMR Trust, founded by Nachiket Mor, an erstwhile board member of ICICI. Now called Northern Arc, Mor’s company was focussed on financial inclusion and Sukumar, who was amongst the earliest employees, was on the group executive committee. He played a significant role in shaping its strategy, direction, and selection of its clients; besides as the CFO, he helped to raise equity capital. “It was a fantastic experience for me. It exposed me to the grassroots because the company was completely focused on financial inclusion, which meant that the tools we use in mainstream finance were being applied to raise debt capital for the most impoverished of our population.”

After working for nearly 7.5 years Sukumar took the plunge and started his own company, Vivriti Capital Private Limited (a Sanskrit word meaning progress/development). The way Sukumar saw it was that they would be able to unleash the entrepreneurial potential of their clients and in this manner, act as the catalyst in this process.

Right from inception, the focus of the company was on mid-corporates. The reasoning was that there were more than enough companies catering to the needs of microfinance companies. The microfinance market is quite big. According to the MFIN Micrometer Q2 FY2022-23 report, the country’s microfinance loan portfolio stood at over Rs3 lakh crore at end-September 2022. Besides banks, more than 97 NBFCs cater to this sector.

Specialised companies

There are very few specialised companies providing debt to midsized companies. IFMR Capital, now rechristened Northern Arc Capital, largely services the microfinance segment. Lendingkart, Flexiloans, Indiffi, Neogrowth are some companies operating in the same space. The Ministry of Corporate Affairs has stated that around 18,000 companies have collectively borrowed Rs9 lakh crore which works out to an average of Rs50 crore per company.

  • Badrinathan: stringent processes are followed

    Badrinathan: stringent processes are followed

While banks do a fair amount of lending, many companies still borrow from informal sources. Private banks largely give loans to meet their working capital requirements. The bonds market for mid-corporates is non-existent. “While there has been a huge penetration of equity and a huge penetration of insurance and a huge penetration of asset management products, debt to the mid-corporate space has not been as deeply entrenched as other parts of the ecosystem,” points out Sukumar. There are approximately 20,000 companies in the midmarket segment which, according to analysts, have reasonably good governance standards as well as a debt-to-equity ratio of 0.5 but are unable to raise funds or performance credit funds.

Vivriti Capital was registered as an NBFC in January 2018 and has been providing loans to midsize corporates, including those which have a rating below A and BBB and even unrated ones. The vision of the company is to become the number 1 technology enabled institution for midmarket enterprises with a cumulative credit flow of Rs1 lakh crore and support for 5,000 enterprises by 2026.

The track record of the promoter and the company has seen investors put in as much as $165 million in Vivriti Capital through Series A, B and C rounds of funding. Creation Investment Capital Management and London based Lightrock India, also participated in round C in which $55 million was raised towards the end of March 2023. TVS Capital was the new entrant to invest in the company during this round.

Creation Investment Capital, an impact manager in emerging markets, has been with the company since its early days and is also a major shareholder. The funds from the last round are to be used by Vivriti Capital for expansion and technology for acquisitions besides building a tech-based platform focussed on performing credit for its AMC business. 

The AMC business was set up by Vivriti Capital in 2019 as a subsidiary. Until now the AMC has managed 10 category II AIF funds, three of which are still open (funds registered with SEBI but do not leverage or invest in securities markets). Two of these funds have SIDBI as the major contributor with Vivriti coming in with the statutorily required funds as the anchor partner.

The final closure of the first fund took place in March 2020. One fund has been registered in GIFT City. Of the three live funds, Alpha Debt Fund A, Alpha Optimiser A, and Emerging Corporate Debt Fund are all close ended funds with a life of 3.5 years from the final closure date.

These AIFs source funds from multiple sources including HNIs¸ family offices, companies and institutions, and insurance companies with around 20 per cent raised from overseas entities. Amongst the 350 unique investors one DFI institution has come in as an anchor investor with a commitment of Rs500 crore. Others include SBI, SIDBI, CSB Bank, Federal Bank, RBL Bank.

Insurance companies include SBI General, Royal Sundaram, Navi Insurance, Reliance General Insurance. Corporates includes Hinduja Housing, Hinduja Leyland Finance, Aditya Birla Finance, Infina, MAS Financial Services and Acsys. It was amongst the first to launch a market linked debenture (MLD) aimed at generating marginally higher returns for investors. 

  • While there has been a huge penetration of equity and a huge penetration of insurance and a huge penetration of asset management products, debt to the mid-corporate space has not been as deeply entrenched as other parts of the ecosystem

Between Vivriti Capital with Rs6,000 crore and Vivriti AIF (Rs2,000 crore-plus and undrawn credit of another Rs3,000 crore) Vivriti has an asset size of Rs8,000 crore. The funds have been lent to around 500 companies and dealers of some of these companies. The loans are provided to meet borrower working capital requirements, as well as for vendor financing, dealer financing, securitisation, co-lending, issuance of NCDs and commercial paper.

Additionally, the company has started two new activities: leasing and factoring. “We open our product arsenal to midsized companies to meet their varied needs. Whether they want to buy a machine or they want their vendor to get money or they want just working capital or they want to grow or they want to initiate their capital market journey through an NCD or they want to sell their receivables, we are there,” Sukumar points out. He is fond of saying: “We service the M in the MSME class.”

Unlike banks which take cash as collateral and lend at 9-10 per cent, Vivriti takes bills receivables as collateral for lending. Interest is charged between 13-15 per cent. For term loans, payment is taken in instalments over the 2–3-year tenure. 

“Vivriti Capital has a good model and is used as a proxy by several institutions who cannot lend directly to mid-sized companies,” says A Balasubramanian, MD and CEO, Aditya Birla Sunlife Mutual Fund. “They enable non-investible companies to become investment grade companies and allow them to scale up their businesses,” he adds. 

Quick turnaround

In the business of lending, NPAs are given. However, in the case of Vivriti Capital the NPAs in the last fiscal year (till December 2022) were limited to 0.3 per cent. “Stringent processes are followed during on-boarding,” says Srinivasaraghavan Badrinathan, CFO. “In-depth credit and risk diligence happens at the time of onboarding and it’s a rigorous process that one has to go through before they (mid-corporate borrowers) can get on to my book. And that really helps. And that really shows in the GNPA and in the entire 5-6 years, 0.3 is the highest.”

Badrinathan adds that “even though the process is diligent and very detailed, the overall turnaround time by which we go back to the customer for the loan is very, very quick compare to the banks. We complete the entire process end-to-end within two weeks.” The policy of giving funds to only profitable companies also helps as Vivriti does not lend for repayment of loans or distressed loans. 

Besides personal meetings, a lot of due diligence is automated. Third party reviews are also used for assessment. Vivriti, through its proprietary technology has compressed the time for onboarding new customers and analyses data from various sources including bank statements, GST data, pension payments, etc. They also get feedback from vendors and others. Market feedback is often played back to the borrowers as a value-add to enable them to take remedial action. 

While many banks can match the delivery time, access to credit is not as easy especially for unrated companies. And this is where the specialised companies score. Secondly, companies like Vivriti offer a wide bouquet of products and customise them for each customer. In the case of term loans, the period could range from 18-24 months while in the case of working capital it could be around 90 days. The upper limit in the case of all borrowers is pegged at Rs40 crore.

  • None

Interestingly Vivriti Capital also sources funds from various sources including banks. And then passes this on to borrowers. Vivriti sources funds at floating rates and onward lending is also done on floating interest rates.

“Vivriti Capital is continuously innovating products,” says Ajay Garg, founder & managing director, Equirus Capital, a full-service investment banking outfit. Garg adds that Vivriti provides a good investment opportunity to HNI and companies across sectors. 

Technology and professionalism brought in largely to B2B lending has enabled the company to earn a good return on assets. The return of assets as on 31 December stood at 2.9 which is comparable and even better than several banks and NBFCs. The total income for Vivriti Capital as on March 2022 was Rs405 crore and the EPS was double that of the previous year’s. EPS for FY22 was Rs41.36 on a consolidated basis as against Rs19.46 the previous year.

In 2020 Vivriti also set up a platform to facilitate loans – bringing the giver and the needy on a platform. The debt marketplace platform business was earlier called CredAvenue Private Ltd. It has now been rechristened Yubi. This is an online integrated enterprise debt platform and a one-stop solution for prospecting, evaluating, executing and monitoring debt. “Around August 2020, we spun off our sister concern CredAvenue into a separate entity which was later separated,” says Badrinathan, adding that this is a separate entity managed by Gaurav Kumar and is independent of Vivriti Capital despite some cross-holding of stakes.

Yubi was valued at $1.3 billion in July 2022 itself. The reorganisation following the separation and the subsequent valuation was given effect to in FY22 itself. And the gain on revaluation arising from the giving effect to the change resulted in a notional profit of Rs2,006 crore which was shown in the consolidated accounts under the head of other income. 

Vivriti Capital which currently has a 300 people strong employee base across 8 locations in India has set its eyes on the international markets. While it has an office in GIFT City it has recently set up an office in Singapore. “Singapore is like a gateway to the world. Having a presence there will give us access to very large investors – American, European, Asian – who have a base in Singapore,” confides Sukumar. “Our focus will however be on mid-markets which still offers huge opportunities.”

As of now the company is not looking at an IPO. Like its investee companies, Vivriti feels that it still has a long way to go and scale up. Besides being a B2B company it is not well-known across the investor community. After spinning off one unicorn, Vivriti itself could become a unicorn in a couple of years if not earlier.

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