Navi Finserv Limited

Bond Opportunities
1

Came across Navi Finserv’s latest NCDs offering around 10 to 11 percent and didn’t see a thread here, so starting one. The yield looks on the higher side for an A rated issuer, so wanted to dig a bit deeper and hear what others think.

About the Company

Navi Finserv is part of the Navi Group started by Sachin Bansal (ex-Flipkart). It was earlier Chaitanya Fin before being acquired and renamed in 2019. The company mainly gives out unsecured personal loans through the Navi app and has a smaller home loan book which they are trying to grow. Everything is digital and ML driven, from sourcing to underwriting.

Navi Finserv is fully owned by Navi Technologies. Sachin Bansal holds the majority stake in the parent and has put in a good amount of equity over the years.

Financial Snapshot (based on rating reports)

● Loan book is roughly around 12,000 to 12,500 crore

● Net worth approx 3,000 crore

● Capital adequacy about 30 percent

● Leverage around 2.4 times

● GNPA in the 2.7 to 2.9 percent range recently

● Standalone profit in FY25 was around 220 crore

● Liquidity is reported to be adequate for near term

● Ratings: CRISIL A Stable and India Ratings A Stable

What looks good

● Strong backing from Sachin Bansal

● Good capital buffers and moderate leverage for a young NBFC

● Tech and data driven underwriting which has apparently improved selection quality

● They have tightened collections and recent cohorts are performing better

● Borrowing profile is diversified and they have been able to raise money from several banks and institutions

● Sale of the microfinance arm earlier helped improve group level capital

Key things to watch

● Large part of the book is unsecured personal loans which naturally carries more credit risk

● Portfolio is still young and hasn’t seen a full credit cycle

● RBI’s action last year forced them to cap lending rates which hits margins

● Profitability has come down after the rate caps

● Asset quality has inched up as the book seasons

● A rating means moderate safety, not the comfort of AA or AAA

● Fintech lending space is very competitive and costs need to be tightly managed

Other notes

● Management is trying to increase the secured loan book

● A lot of their personal loans are pre-approved so sourcing cost is lower but everything depends on how strong the data models really are

● Borrowing cost is around 10 percent so spread management becomes important, especially with capped yields

● Group level profitability has been a bit patchy because of other businesses

Recent NCD Issue

● Secured NCDs

● Rating A Stable

● Coupon varies from roughly 9.75 percent to 11 percent

● Tenure options of 18, 27 and 36 months

● Monthly and annual interest payment options

● Listed on BSE

● Security is loan receivables

● Issue size around 300 to 500 crore depending on green shoe

The yields are definitely attractive compared to other A rated issuers. But the business model carries its own risks, so trying to understand whether the extra interest really compensates or not.

Would love to hear from anyone who has looked at Navi Finserv more closely or subscribed to these bonds.

Disc: Not invested yet.

3

I had gone through some of the rating reports earlier. One thing worth highlighting is that Navi Finserv’s capital position is actually pretty solid for a young NBFC.

CRAR at ~30 percent and net worth above 3,000 crore gives them a decent buffer.

Their underwriting also seems to have matured over the last two years. Ind-Ra mentioned that the ML models have been retrained with more variables and that recent cohort performance has improved.

That said, the big monitorable is still credit costs. Their credit cost numbers were around 5 percent for FY24 and FY25 at the consolidated level. If this stays under control, the business can scale without blowing up.

Curious to know how people here are thinking about the 11 percent yield for an A rated name. Is it adequate compensation or still a bit tight?

4

One concern I have is the mix.
Almost 85 to 90 percent unsecured personal loans is no joke. That category behaves very differently when the cycle turns, especially for younger lenders.
Asset quality has already inched up to around 2.7–2.9 percent GNPA. If growth slows or collection efficiency drops, this can move up fast.

Also worth noting that RBI capping interest rates last year hit their spreads. So their profitability is basically dependent on keeping credit costs low.
Not saying the bonds are bad, but at 11 percent you are taking on real risk. Personally I would like to understand how their home loan book is performing and whether management is actually serious about diversifying the portfolio.

5

Good points. The interest rate cap definitely changed their unit economics.
However, Navi seems to be trying to compensate in a few ways:

  1. They’ve been pushing more secured home loans with small ticket size.

  2. They have tightened underwriting and slowed down disbursals in some high-risk segments.

  3. Collection infra has also been strengthened, they increased their in-house teams.

Still, totally agree that the unsecured mix is a key risk. In the short NCD tenure like 18–36 months, the main thing to watch is whether GNPA keeps drifting up or stabilises.

On refinancing risk - their lender base is pretty diverse now around 27 banks + NBFCs which gives some comfort.

6

I subscribed to a small amount in the last NCD issue.
My logic was simple: position sizing. I wouldn’t put big money here, but for a small portion of the fixed income bucket, 10.5-11% is attractive.
Personally I’m okay taking a bit of risk as long as the maturity is short and the buffers look okay. But this is definitely a “track every quarter” type of issuer. Not a set-and-forget bond like a PSU.
Wouldn’t go overweight on this though.