| Godrej Housing Finance Limited | ||||||
| 'CRISIL AA/Stable' assigned to Non Convertible Debentures; Rated amount enhanced for Commercial Paper | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the Rs.250 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; ‘CRISIL AA/Stable/CRISIL A1+’) and the Godrej group, 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 Godrej group, 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 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 and loans against property (LAP). Both these companies are ultimately held by GIL through its subsidiary, GCL (GIL holds around 92% 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 32 branches across 28 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 and the Godrej group 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 and the Godrej group, 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:
GIL is the flagship company of the Godrej group (promoter and promoter group companies held 67.17% equity in GIL as on June 30, 2023). 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 chairman of GHFL and a non-executive director in 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.
Weakness:
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 89 crore and Rs 33 crore in fiscals 2022 and 2021, respectively), however it broke even during first quarter of fiscal 2024. While GFL continues to report losses due to branch expansion and addition of product lines, GHFL had turned profitable in the previous fiscal reporting a net profit of Rs 17 crore in Q1 of fiscal 2024 (Rs 38 crore in fiscal 2023).
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. |
Liquidity: Strong Liquidity of the Godrej Capital group is comfortable with adequate cash and equivalent (around Rs 270 crore) and unutilised bank lines (around Rs 3,493 crore) as on August 31, 2023. The group has debt obligation of Rs 999 crore between September 2023 and February 2024. Liquidity is supported by expectation of continued capital support from GIL and the Godrej group 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 the Godrej group, including GIL, and maintain comfortable capitalisation. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Group and 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 95% 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 licence 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. Having commenced operations in November 2020, it has built a total loan book of Rs 4,255 crore as on June 30, 2023. GHFL operates through 17 branches/offices. During fiscal 2023, GHFL incurred a profit of Rs 38 crore on a total income (net of interest expenses) of Rs 114 crore, compared with a loss of Rs 76 crore on a total income (net of interest expenses) of Rs 24 crore in fiscal 2022. In the first three months of fiscal 2024, the company reported a net profit of Rs 17 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 32 branches/offices. The loan book has grown to Rs 2,187 crore as on June 30, 2023. During fiscal 2023, the company reported a loss of Rs 69 crore on a total income (net of interest expenses) of Rs 40 crore. In the first three months of fiscal 2024, the company reported a loss of Rs 17 crore.
During fiscal 2023, the Godrej Capital group reported a loss of Rs 31 crore and total income (net of interest expenses) of Rs 155 crore compared with a loss of Rs 63 crore and total income (net of interest expenses) of Rs 26 crore during the previous fiscal. In the first three months of fiscal 2024, it had a profit of Rs 0.4 crore. |
Key financial indicators (Godrej Capital group)
Key financial indicators (Godrej Housing Finance Ltd)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Not yet issued ^Interchangeable with short term bank loan facility |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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