| HDFC Credila Financial Services Private Limited | ||||||||
| 'CRISIL AAA/Stable' assigned to NCD issue | ||||||||
| Rating Action | ||||||||
| ||||||||
| 1 crore = 10 million | ||||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
|
CRISIL has assigned its 'CRISIL AAA/Stable' rating to the Rs.300 crore non-convertible debenture issue of HDFC Credila Financial Services Private Limited ('HDFC Credila'; formerly Credila Financial Services Pvt Ltd) and has reaffirmed its ratings on the existing debt instruments at 'CRISIL AAA/Stable/CRISIL A1+'. |
| Analytical Approach |
|
For arriving at the ratings, CRISIL has considered the standalone business and financial risk profiles of HDFC Credila and notched up the ratings to those of its parent, HDFC. |
| Key Rating Drivers & Detailed Description |
|
Strengths * Strong expectation of managerial, financial and operational support from parent HDFC views education loans as a segment with high growth potential in the long term; HDFC Credila, India's first non-banking financial company (NBFC) offering education loans, is its vehicle to target this segment. HDFC has also set up schools and skill upgrade centres. Although HDFC Credila has a small scale of operations, with total assets of Rs 4293 crore as on March 31, 2018, the strong involvement of HDFC clearly reflects its confidence in the growth potential of the education loan business and plans to ramp-up HDFC Credila's operations commensurately. Currently, there are three directors on HDFC Credila's board from HDFC; these directors, along with the board, take an active interest in the formulation of the company's business strategies. Moreover, HDFC Credila benefits from its association with HDFC and its established branch network and infrastructure in the sourcing business. HDFC has infused around Rs 50 crore as additional capital into HDFC Credila in fiscal 2018 and Rs 80 crore in fiscal 2019 till September 30, 2018. As on September 30, 2018, HDFC's shareholding in HDFC Credila was 83.38% (90.8% on a fully diluted basis). * Experienced management with strong processes and systems The promoters, Mr. Ajay Bohora and Mr. Anil Bohora have been in the education services industry for over a decade and bring with them immense knowledge and expertise. They are supported by an experienced management team with veterans from the banking and financial services industry. Moreover, HDFC Credila benefits from being the first education loans focused NBFC in a segment which is predominantly dominated by banks (mainly PSBs). HDFC Credila has also built strong systems and processes that help mitigate asset quality risks of this segment. The company has a large database of colleges and courses which it uses for loan decisioning. The company has developed credit scoring models for disbursing loans to borrowers of which around 48% are backed by collateral as on March 31, 2018 and all loans have a co-borrower. CRISIL believes HDFC Credila will remain a strong player in the education loan industry. * Adequate resource profile HDFC's parentage helps HDFC Credila access a large pool of investors, and raise debt at competitive costs. As on March 31, 2018, the company had total borrowings worth Rs 3,747 crore and cost of borrowings at 8.4%. The company has been able to gradually diversify its resource profile and reduced the dependence on bank borrowings. As on March 31, 2018, bank borrowings constituted 41% of the total borrowings as against 52% as on March 31, 2016. NCDs and commercial paper (CPs) constituted 45% and 14%, respectively, of the total borrowings as on March 31, 2018. The company is expected to further increase the proportion on capital-market borrowings and continue to diversify the resource mix over the medium term. Weaknesses * High gearing levels Gearing of 8.4 times as on March 31, 2018 (9.2 times as on March 31, 2017) was higher than the industry average, while networth was Rs 456 crore (including Rs 67 crore of compulsory convertible preference shares from HDFC). Tier-1 and overall capital adequacy ratios were 10.32% and 18.02%, respectively, as on March 31, 2018. Nevertheless, with profitability improving since fiscal 2013, and with adequate annualised accrual to net worth (22.5% for the fiscal 2018), gearing should improve gradually over the medium term. Furthermore, capital profile is backed by expectation that HDFC will infuse capital as and when required. * Overall small scale of operations with limited seasoning of loan book Scale of operations is small, however the business has seen significant growth over the past few years. The three year compounded annual growth rate was 34% from fiscal 2015 to fiscal 2018 with the outstanding portfolio increasing to Rs 4048 crore as on March 31, 2018 (Rs 3194 crore as on March 31, 2017). Business volumes are expected to increase albeit at a slower pace than in the past, with a growing base. Gross non-performing assets (NPA) have remained low at 0.04% (based on 90 days NPA classification) as on March 31, 2018 [0.05 %( 90+dpd) as on March 31, 2017). However, given high growth in recent years, a significant part of the loans disbursed by the company are in the moratorium period and hence, the seasoning of the loan portfolio is limited at this stage. The company's ability to successfully recover its loans through business cycles is yet to be tested. |
| Outlook: Stable |
|
CRISIL believes HDFC Credila will continue to benefit from the strong financial, managerial, and operational support from HDFC and the experienced management. The outlook may be revised to 'Negative' if there is significant deterioration in HDFC's credit risk profile, significant change in the extent of the HDFC's ownership of HDFC Credila, or diminution in the expected support from HDFC. |
| About the Company |
|
HDFC Credila, promoted by Mr. Anil Bohora and Mr. Ajay Bohora, was incorporated on February 1, 2006. It is registered as a non-deposit-taking NBFC with the Reserve Bank of India. HDFC Credila is in the business of originating, funding, and servicing educational loans. It is a subsidiary of HDFC. HDFC Credila has eight own offices and at other places, does business through the branches of HDFC. HDFC Credila uses various channels for sourcing and marketing, which include the internet, branch network of HDFC and a few private sector banks, partnering with colleges, education consultants, and test preparation centres, advertising, and direct marketing. |
| Key Financial Indicators | ||||||||||||||||||||||||||||
|
|
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) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Links to related criteria |
| Rating Criteria for Finance Companies |
| CRISILs Criteria for rating short term debt |
| Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support |
| For further information contact: | ||||||
|