Rating Rationale
November 30, 2018 | Mumbai
Dewan Housing Finance Corporation Limited
 
Rating Action
Rs.8000 Crore Commercial Paper (Reduced from Rs.15000 Crore) CRISIL A1+
Rs.1000 Crore Short Term Deposit CRISIL A1+
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

Based on the request by DHFL as a part of change in their borrowing strategy, CRISIL has reduced the quantum of rated commercial paper (CP) of Dewan Housing Finance Corporation Ltd (DHFL) to Rs 8,000 crore from Rs 15,000 crore. 

Analytical Approach

For arriving at the ratings, CRISIL has consolidated DHFL with Avanse Financial Services Limited (Avanse). Additionally, CRISIL has considered support that DHFL, being the flagship company of Dewan group, is expected to provide to Aadhar Housing Finance Limited (Aadhar).

Avanse and Aadhar are expected to get strategic, operational and managerial support from Dewan group since they are till now key constituents of the group's strategy of being a significant player in retail financial services. CRISIL believes that DHFL and Dewan group, will provide distress support to Avanse and Aadhar for timely repayment of debt obligations.

Key Rating Drivers & Detailed Description
Strengths
* Long and established position within HFC industry
DHFL has been operating for more than 30 years in the housing finance industry. On standalone basis, it had assets under management (AUM) of Rs 1,30,890 crore as on September 30, 2018 (Rs 1,11,090 crore as on March 31, 2018). DHFL also has sizeable presence in the affordable housing finance segment. DHFL remains focused on providing housing finance primarily to low- and middle-income customers in tier-II and tier-III cities, which account for majority portion of its branch network (351 locations as on September 30, 2018). In terms of AUM mix, DHFL had around 57% loans towards housing, 22% towards loan against property, 17% towards project loans, and 5% towards SME finance.

* Healthy asset quality as on date
DHFL has reported healthy asset quality till date as reflected in low gross NPAs of 0.96% as on September 30, 2018 (0.96% as on March 31, 2018). The GNPAs, on a 2-year lag basis, stood at around 1.5% as on September 30, 2018. Asset quality in housing loan segment is supported by a relatively low-risk, granular loan book, supported by focus on low- and middle-income customers in tier-II and tier-III cities. Average ticket size is ~Rs 15 lakh, which makes the loan book granular.

Given the situation on the fund-raising and liquidity front at the industry level, asset quality on segments such as loans to small and medium enterprises (SME), loans against property (LAP) and real estate developer loans would be the key monitorables going forward. This stems from the sensitivity of borrowers in these segments to prolonged funding crunch. So while current delinquencies are not high, if the funding situation for non-banks does not stabilise over a period of time, asset quality challenges could manifest.

Weaknesses
* Modest capital position
Reported networth and capital adequacy ratio (CAR) were Rs 10,401 crore and 16.19%, respectively, as on September 30, 2018 (Rs 8796 crore and 15.29%, respectively, as on March 31, 2018). DHFL maintained its gearing at 10.5 times as on September 30, 2018. Gearing (adjusted for securitisation) remained high, at around 12.4 times as on September 30, 2018 (it was at 12.7 times as on March 31, 2018).

* Modest earnings
RoMA, though stable, at 1.3% during first half fiscal 2019, was lower than that of peers (on reported basis RoA stood at 1.5% during same period). This was primarily because of intense competition resulting in low spreads, and high operating expenses resulting from large branch network and small ticket size of loans.

Liquidity Profile
DHFL's ALM statement as on September 30, 2018 does not show any cumulative mismatches. However, if we exclude sanctioned lines of Rs 3,500 crore, it shows negative mismatches across buckets upto 1 year. This is largely due to the large quantum of CP maturities in the upto 2 months bucket. However, DHFL has repaid most of its CPs since then and has only Rs 1700 crore outstanding as on date. Hence, even excluding the sanctioned lines, there are no negative cumulative mismatches in the buckets upto 1 year.

DHFL raised around Rs 7410 crore through assignment of loan receivables between September 24 and November 16, 2018. This was primarily due to the granular retail loan book which was readily available and acted as a quasi-liquidity in the time of challenging market situation. During November 2018, the company was able to access the debt capital market through fresh issuance of non-convertible debentures (NCDs) amounting to Rs 1,250 crore and Rs 1,500 crore. Further, during the same period, the company repaid Rs 13,927 crore of debt (including Rs 9,215 crore of CPs).

DHFL estimates monthly collections from loan assets to be ~Rs 2,700 crore till March 2019. Against this, DHFL has around Rs 2,600 crore of outflows (including debt repayments and operating expenses) per month till March 2019. On the business front, like most non-banks, DHFL too has curtailed disbursements to conserve liquidity. As per information shared by DHFL, post repayment of borrowings mentioned above, liquidity reserve of DHFL stands at around Rs 4,000 crore (including SLR of Rs 1,414 crore) as on November 22, 2018. DHFL also has sanctioned securitisation limit of ~Rs 3,500 crore, which is yet to be utilised. CRISIL expects DHFL to be able to securitise the loan book as and when required to generate additional liquidity. Further, DHFL is expecting to generate Rs. 1,500 crores every month through securitization.
About the Company

Incorporated in 1984, DHFL primarily provides housing finance to individuals, especially to the low- and lower-middle-income groups in tier-II and tier-III cities. The company also offers non-housing loans such as LAP, developer loans, and SME loans. In December 2010, it acquired Deutsche Post Bank Home Finance Ltd (DPBHFL) to enter the middle- and upper-middle-income segments in tier-I cities. DPHFL was renamed First Blue Housing Finance Ltd. and was merged into DHFL in March 2013. DHFL has a pan-India presence at around 349 locations customer touch points as on March 31, 2018.

Profit after tax and total income (net of interest expense) stood at Rs 1,172 crore and Rs 2,500 crore during fiscal 2018 as against profit after tax (including one-time gain from sale of investment) and total income (net of interest expense) of Rs. 2,896 crore and Rs 4,173 crore respectively in fiscal 2017.

Key Financial Indicators (Standalone)
As On/For The Period Ended
March 31 / September 30
Unit Sep 30, 2018
(6 months)
March 31, 2018 March 31, 2017
Total assets Rs.Cr 1,22,875 1,07,572 92,298
Total income Rs.Cr 6,680 10,465 10,827
Profit After Tax Rs.Cr 874 1,172 2,896
Gross NPA % 0.96 0.96 0.94
Gearing (excluding off-book) Times 10.5 10.5 10.2
Gearing (Including off-book) Times 12.4 12.7 11.7
Return on assets (Reported) % 1.5* 1.2 1.2
*On annualised basis

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN No. Instrument Date of  Allotment Rate of Interest (%) Date of Redemption Issue Size
(Rs.Crore)
Rating Assigned
with Outlook
NA Commercial Paper NA NA 7-365 days 8000 CRISIL A1+
NA Short-Term Deposit NA NA 7-365 days 1000 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  8000.00  CRISIL A1+  06-11-18  CRISIL A1+  27-10-17  CRISIL A1+    --    --  -- 
        07-05-18  CRISIL A1+               
Short Term Debt  ST          11-07-17  CRISIL A1+  07-07-16  CRISIL A1+  17-07-15  CRISIL A1+  CRISIL A1+ 
Short Term Deposit  ST  1000.00  CRISIL A1+  06-11-18  CRISIL A1+  27-10-17  CRISIL A1+  07-07-16  CRISIL A1+    --  -- 
        07-05-18  CRISIL A1+  11-07-17  CRISIL A1+           
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt

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