Rationale

 The rating action factors in Electronica Finance Limited’s (Electronica) adequate capitalisation profile with the managed gearing1 at 4.4 times as on September 30, 2025. The company has plans to raise equity capital in the near term, which is important for its medium-term growth plans, as it envisages to expand its assets under management (AUM) at a compound annual growth rate (CAGR) of 20-25%. The ratings also take into consideration Electronica’s established track record of more than three decades in machine financing, which constituted about 70% of the AUM as on September 30, 2025. ICRA notes that the overall asset quality moderated in FY2025 and H1 FY2026 with gross non-performing assets (NPAs) increasing to 3.1% as on September 30, 2025, largely due to the high-yield micro-loan against property segment (micro-LAP; 16% of average ticket size of Rs. 3-4 lakh; 16% of AUM as of September 2025). NPAs in machinery financing, however, remained low at 0.6% as on September 30, 2025 (0.3% and 0.5% in March 2024 and March 2025, respectively). The company has halted disbursements in the micro-LAP segment and is expected to focus on the relatively lower yield and higher ticket sized LAP (affordable LAP; with average ticket size of Rs. 8-10 lakh) segment, going forward. Initiatives have been taken to achieve recoveries from the delinquent micro-LAP book and to keep incremental slippages from this book under control; this remains a key monitorable in the near term. The ratings also factor in the company’s moderate earnings profile on account of higher operating expenses, reduction in interest margins and increase in credit costs. Electronica’s ability to improve its margin and operating efficiency, considering the shift to higher-ticket LAP and increased focus on machine financing, while keeping its credit costs under control shall be key for improving its earnings performance. The ratings continue to consider the inherent risks associated with lending to small and medium-sized industrial units that are susceptible to economic shocks. The Stable outlook on the rating reflects ICRA’s expectation that the company will continue to benefit from its experience in the machine financing business and its adequate capitalisation profile