LRA Assigns Initial Entity Rating to Lakderana Investments Limited.

Lakderana Investments Limited (“LIL” or “the Company”) is a limited liability company dedicated to providing financing solutions to those that traditionally lack access to such services. The Company operates under Consumer Credit Act and Mortgage Act. LIL does not take deposits. The rating takes into account the Company's solid earning profile, relatively higher spread, established track record and strong asset quality indicators. The Company has recorded gross and net NPLs of ~10.13% and ~(2.92%), respectively, as of end-FY24. The NII has improved by ~4% to LKR~662mln in FY24 as compared to LKR~635mln in FY23 as core spread improved to ~14.42% in FY24 after decreasing to ~8.81% in FY23. Core income is supplemented by other income, mainly insurance premiums and processing fees. LIL's business model is concentrated towards Hire-Purchase (Three-Wheeler) segment of registered and non-registered vehicles, representing ~96% of the lending portfolio. The target customers of the Company remain vulnerable to economic shocks but higher prices of underlying assets provide cushion against defaults. The rating is constrained by limited funding profile, high cost of borrowings and relatively leveraged capital structure of the Company, impeding growth. As of FY24, loans and borrowings constituted approximately ~92% of the company’s funding, up from ~82% in FY23. The debt-to-equity ratio increased to approximately ~1.3x in FY24 from ~1.1x in FY23, primarily due to a significant rise in borrowings. Going forward, LIL aims to increase both its interest and non-interest income through new initiatives such as top-up loans, life insurance, consumer product financing and green financing. These strategies are expected to diversify loan portfolio.
The rating is dependent on Lakderana Investments Limited’s ability to sustain its margins and robust asset quality while achieving its growth targets. Meanwhile, effectively reducing cost of borrowings, especially high cost funding lines, establishing new product lines and strengthening governance practices will be important. Any significant reduction in margin and/or profitability or deterioration in asset quality will have have negative rating implications.

About the Entity
Lakderana Investments Limited (LIL) is a limited liability company incorporated and has been operational since March 6, 2006. Over the past 18 years, LIL has expanded to 27 locations with a workforce of nearly 200 employees, serving approximately 60,000 customers. The company’s strategic focus is on low- and medium-income earners, with over 90% of its branches situated outside the Western Province. LIL specializes in providing financing for pre-owned and unregistered vehicles through hire purchase agreements. In order to diversify the portfolio, the Company is offering Gold Loans and Mortgage Loans under the Mortgage Act. Hire purchase facilities are provided under the Consumer Credit Act. The company's ownership is held by Mr. Virath De Alwis and five other executive directors.