Key Rating Drivers & Detailed Description

Strengths:

* Strong support from the parent

Strong support from HFCL is expected given the strategic importance of HHFL as a critical business growth driver for the lending business. HHFL, the housing finance arm, is an important piece added to move closer to complete the offerings of HFCL for its customers’ credit life cycles. The housing arm is expected to add scale and granularity to the current lending book of HFCL. The company also a strong moral obligation to support HHFL given that it holds 99.3% shareholding in the company. Also, both the companies have two common board of directors, share the same name and brand, and have operational synergies (including common treasury). HFCL has infused equity of Rs 800 crore in HHFL till date and is expected to infuse additional capital on an ongoing basis and in the event of distress. Also, the strong parentage and common treasury are expected to benefit HHFL in raising funds at competitive rates.

* Adequate capitalisation

Total networth was around Rs 759 crore while gearing was 4.3 times, as on March 31, 2023 (Rs 432 crore and 5.6 times, respectively, as on March 31, 2022). The company raised Rs 300 crore from HFCL in the second quarter of fiscal 2023 and is expected to receive additional capital whenever required. Gearing is expected to remain comfortable at 5-6 times over the medium term but thereafter as the operations scales up, company is expected to receive capital support from its parent.

Weakness:

* Early stage of operations

Operations commenced from April 2018 and AUM stood at Rs 3,951 crore as on March 31, 2023 (Rs 2,824 crore as on March 31, 2022). In terms of segmental composition, home loans formed around 72% of the loan book, followed by loan against property at 27% and construction finance at 1%. The company plans to grow its loan portfolio substantially in the long term. While housing finance will remain the key focus area, products such as loans against property, construction finance, and non-residential property loans will also be offered. Within housing finance also, the company intends to have offerings across affordable, mid-market and prime segments. Currently, the company operates from 65 branches in 9 states, but operations are expected to gradually expand across geographies.

Housing finance, particularly in the affordable housing finance segment, has witnessed challenges in the salaried and self-employed segments, during last 2 years as borrowers income streams have been affected due to the pandemic. The company has taken measures to improve collections by engaging and reaching out to the borrowers, forging tie-ups with fintech players to digitise collections, and is in process of implementing analytics to strategise collections. In terms of reported metrics, gross stage 3 assets stood at 2.4% as on March 31, 2023 as compared to 3.1% as on March 31, 2022 . As on same date, the company has invoked restructuring for ~1% of the loan book.

However, management ability to maintain adequate asset quality and profitability as the business scales up will remain a key monitorable. Nonetheless, the company already has a dedicated and experienced team in place, backed by adequate risk management systems and processes, which will help the team grow the loan book responsibly.

Key Financial Indicators

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