Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA+/Stable rating to the Rs.445 crore non convertible debentures of Godrej Housing Finance Limited (GHFL). CRISIL Ratings has also reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities and existing debt instruments of GHFL

 

The ratings centrally factor in the expectation of strong support from Godrej Industries Ltd (GIL); both on an ongoing basis and in case of distress. This is on account of the strategic importance of the financial services businesses to GIL, and the moral obligation of the latter to provide support, given the majority shareholding and common brand. The financial services businesses are housed under Godrej Capital Ltd (GCL) and comprise GHFL and Godrej Finance Ltd (GFL) and henceforth are referred to as the Godrej Capital group. The ratings also factor in the comfortable capitalisation and experienced management team of the Godrej capital group. These strengths are partially offset by the nascent stage of operations and limited track record of the group in the financial services business.

 

While GHFL is a newly established housing finance company (HFC) of the Godrej group which focuses on mortgage-backed loans, GFL is the non-banking financial company (NBFC) arm of the group with a focus on non-mortgage-backed loans including small and medium enterprise (SME) loans, loans against property (LAP) and construction financing. Both these companies are ultimately held by GIL through its subsidiary, GCL (GIL holds around 89.5% stake in GCL).

 

GHFL intends to cater to both mid-market and prime housing segments. GFL commenced lending in March 2022 and focuses on non-mortgage business. Godrej Capital group has 38 branches across 30 locations, and is gradually expanding its reach to other markets. GHFL and GFL derive synergies in terms of management, systems and treasury.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of GCL and its subsidiaries GHFL and GFL, collectively referred to as the Godrej Capital group, and factored in the strong linkages with GIL in terms of operations, finance, management and infrastructure, along with a strong common brand. The ratings also factor in the strong support Godrej Capital group is likely to receive from GIL, on an ongoing basis and in times of distress.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

Expectation of strong support from GIL

The financial services business of GIL took off with GHFL. GIL, through its subsidiary GCL, holds 89.5% stake in both GHFL and GFL. The financial services business has been identified as a focus area for the group’s diversification plans.

 

GIL is the flagship company of the Godrej group (promoter and promoter group companies held 67.16% equity in GIL as on June 30, 2024). GIL is expected to maintain minimum shareholding of 51% and retain management control over the Godrej Capital group at all points of time.

 

The Godrej Capital group benefits from the existing ecosystem of the Godrej group. It also receives managerial and operational support from the group. Mr Pirojsha Godrej, who is on the board of directors in various group companies, is the non-executive director in GHFL and GFL. Furthermore, the common corporate identity and brand has benefitted GHFL & GFL in terms of ability to raise funds from diverse lenders at competitive interest rates.

 

Comfortable capitalisation

The Godrej Capital group has access to sufficient capital to scale up the business. The Godrej group had initially committed equity capital of around Rs 1,500 crore to the financial services businesses, which was completely infused. GIL had further approved capital infusion of Rs 1,200 crore in GCL of which Rs 950 crore has been infused in fiscal 2024. In the first half of fiscal 2025, the parent has infused equity of another Rs ~793 crore. Consolidated networth and gearing stood at Rs 2,999 crore and 3.7 times as on September 30, 2024 (Rs 2,160 crore and 3.9 times as on March 31, 2024). Gearing is expected to increase to around 5-6 times on a steady-state basis as the business scales up. Strong capital support should aid growth and help mitigate any asset-side risk.

 

Experienced management

The Godrej Capital group is led by Mr Manish Shah (Managing Director and Chief Executive Officer), who has over two decades of experience in the financial services sector. The leadership team across other critical functions is also well qualified with each member having significant experience in retail lending, including housing finance. The management has focused on putting in place adequate systems, processes, and policies for scaling up the business.

 

Weakness:

Nascent stage of operations

GHFL and GFL commenced operations in November 2020 and March 2022, respectively. The consolidated loan book[1] was Rs 13668 crore as on September 30, 2024 (Rs 10,761 crore as on March 31, 2024 and Rs 5,157 crore as on March 31, 2023). While GHFL focuses on mortgage loans, GFL has both mortgage and non-mortgage loans on its loan book. The Godrej Capital group is likely to see significant growth in its loan book and geographic reach over the medium term. As on September 30, 2024, GHFL and GFL had reported gross non-performing assets (GNPA) of Rs 0.3 crore and Rs 20.4 crore respectively, given the books remain largely unseasoned.

 

Given the initial stage of operations and investments towards requisite infrastructure, operating expenses are high, thereby constraining earnings. The Godrej Capital group incurred a loss of Rs 31 crore in fiscal 2023 (net loss of Rs 63 crore in fiscals 2022), however it broke even during first quarter of fiscal 2024 and reported a net profit of Rs 50 crore in fiscal 2024. GHFL had turned profitable in fiscal 2023 and reported a net profit of Rs 80 crore in fiscal 2024 (Rs 38 crore in fiscal 2023) while GFL reported a net loss of Rs 29 crore in fiscal 2024 but it broke even during last quarter of fiscal 2024. For the half year ended September 30, 2024, GHFL and GFL reported a net profit of Rs 21 crore and Rs 30 crore respectively.

 

Earnings at a consolidated level are expected to remain modest in the near term and gradually improve thereafter with ramp-up of operations and as economies of scale kick in. The ability to successfully scale up business with healthy asset quality and profitability will remain a key monitorable.

[1]Total loan book includes off-book portfolio

Liquidity: Strong

Liquidity of the Godrej Capital group is comfortable with adequate cash and equivalent (around Rs 639 crore) and unutilised bank lines (around Rs 4,360 crore) as on October 31, 2024. The group has debt obligation of Rs 2,775 crore maturing between November 2024 and April 2025. Liquidity is supported by expectation of continued capital support from GIL as well as good financial flexibility, enhancing the ability to raise funds from diverse lenders at competitive interest rates.

Outlook: Stable

The Godrej Capital group should continue to derive financial, managerial, and operational support from GIL, and maintain comfortable capitalisation.

Rating sensitivity factors

Upward factors:

• Upward revision in credit view on the ultimate parent by CRISIL Ratings
• Attaining sizeable market share while maintaining healthy asset quality (gross non-performing assets [NPAs] less than 1%) and sustained improvement in earnings

 

Downward factors

• Reduction in support to the Godrej Capital group from GIL
• Downward revision in the credit view on the ultimate parent by CRISIL Ratings
• Deterioration in asset quality with gross NPAs exceeding 3%, over an extended period

About the Company

GIL, the flagship entity of the Godrej group, is one of India’s leading manufacturers of oleochemicals and surfactants. GIL through its subsidiaries, is also a leading player in the fast-moving consumer goods (FMCG), real estate and food and agri-sector businesses. GCL is a 89.5% subsidiary of GIL with the remaining 5% stake held by a private equity investor. Both GHFL and GFL, are 100% held by GCL.

 

GHFL received the housing finance license from the Reserve Bank of India in October 2020. The company is primarily engaged in the mid and premium housing segments and offers home loans and is also planning to diversify into the affordable segment. Having commenced operations in November 2020, it has built a total loan book of Rs 6,962 crore as on September 30, 2024. GHFL operates through 16 branches/offices as on September 30, 2024. During fiscal 2024, GHFL reported a profit of Rs 80 crore on a total income (net of interest expenses) of Rs 163 crore, compared with a profit of Rs 38 crore on a total income (net of interest expenses) of Rs 114 crore in fiscal 2023. For the half year ended September 30, 2024, the company reported a net profit of Rs 21 crore on a total income (net of interest expenses) of Rs 69 crore

 

GFL, incorporated as Ensemble Holdings and Finance Ltd in 1992, held the NBFC license and was a part of the Godrej group. Following a change in shareholding structure, it was brought under GCL, with GIL being the ultimate holding parent. The company focuses on non-mortgage loans including SME loans and LAP, and commenced lending in March 2022. Recently it also forayed into construction financing. The company operate through 47 branches/offices as on September 30, 2024. The loan book has grown to Rs 6,706 crore as on September 30, 2024. During fiscal 2024, the company reported a loss of Rs 29 crore on a total income (net of interest expenses) of Rs 216 crore, compared to a loss of Rs 69 crore on a total income (net of interest expenses) of Rs 40 crore in fiscal 2023. For the half year ended September 30, 2024, the company reported a net profit of Rs 30 crore on a total income (net of interest expenses) of Rs 216 crore

Any other information: Not Applicable