CRISIL has assigned its 'CRISIL BBB+/Stable' rating to Rs.50 crore Non-Convertible Debentures of of Home Credit India Finance Private Limited (Home Credit India) and reaffirmed the rating on the bank facilities and other debt instruments at. 'CRISIL BBB+/Stable'

The ratings continue to reflect Home Credit India's strategic importance to, and expectation of continued strong support from, the parent, Home Credit Group BV. The ratings also factor in the company's adequate capitalisation, moderate resource profile backed by significant funding from group and its improving market position in the personal loan segment. These strengths are partially offset by the company's weak asset quality and modest earnings profile.

CRISIL has also withdrawn its rating on the non-convertible debentures of Rs 950 crore (See Annexure 'Details of Rating Withdrawn' for details) in line with its withdrawal policy. CRISIL has received independent that these instruments are fully redeemed.
 
Due to the challenges linked to Covid-19 pandemic on field operations, weak economic indicators and vulnerability of customer segment, the company has focused on collections with disbursements remaining low. Home Credit India's assets under management stood at Rs 7,997 crore as on March 31, 2020 and it de-grew to Rs 7,634 crore as on June 30, 2020.
 
Home Credit India extended moratorium only to borrowers who did not have any overdue payments as on February 29, 2020. As on August 31, 2020, only about 8% of borrowers, equivalent to 10% of AUM, have not paid a single EMI during the entire moratorium period of 6 months. The monthly collections of Home Credit India has improved over the past 6 months although it still remains below pre-covid levels. The collection efficiency¹ in September 2020 is estimated at 75% as compared to 57% in June 2020. Ability to sustain the increasing trend in collections in the coming months will remain a key monitorable.
 
The asset quality metrics of Home Credit India continue to remain elevated with gross non-performing assets (GNPA) of 9.36% as on June 30, 2020 against 7.84% as on March 31, 2020. Including the loans written-off the overall weak assets (GNPA including write-off to AUM) were 12% as on June 30, 2020 against 17% as on March 31, 2020.  Home Credit India had written-off Rs 928 crore in fiscal 2020 with about Rs 392 crore in Q4 of fiscal 2020 owing to change in write-off policy to 270+ days in March 2020 from 360+ days previously. CRISIL understands that the credit costs are expected to be higher in the near term because of the change in the write-off policy and also change in classification of borrowers to higher days past due (dpd) buckets, who were in 0+dpd as on February 29, 2020. CRISIL estimates pressure on asset quality metrics to continue in the near term because of the current economic environment and credit profiles of the borrowers catered by Home Credit India. However, the networth of Home Credit India is adequate at Rs 2,494 crore as on June 30, 2020 and is expected to support any significant spike in credit costs. Adjusted gearing stood at 2.3 time as on June 30, 2020. Further, CRISIL expects the ultimate parent of Home Credit Group BV to provide capital support to Home Credit India in case of any extreme stress scenario.
 
Home Credit India's liquidity profile is healthy with cash and equivalents of Rs 1,104 crore and unutilised working capital bank lines of Rs 98 crore. This is expected to be comfortable to manage debt repayments over the next 3 months which includes NCD repayments of Rs 622 crore to Group entities, which is likely to be rolled over on need basis. Factoring only non-group debt repayments, the liquidity levels cover over 6 months of outflows assuming zero collections.

The rating of Home Credit India continues to be centrally driven by its strategic importance to, and expectation of strong support from its parent, Home Credit Group BV.  

Strengths
* Strategic importance to, and expectation of strong support from, the parent, Home Credit Group BV: 
Given its large population and limited credit penetration by organised players in the retail consumer finance business, India is a strategically important country for the Home Credit group. Home Credit India, therefore, is likely to receive strong financial, managerial, and operational support from the parent, Home Credit Group. Home Credit group has infused equity capital of close to Rs 2,539 crore in Home Credit India between fiscal 2017 and 2019. During fiscal 2019, Home Credit group has infused equity of around Rs 1,000 crore, thereby providing support during the then tight liquidity conditions. The Group also provides debt funding support to the company. This indicates the parent's strong commitment to provide funding and capital support to the subsidiary. CRISIL believes Home Credit India will continue to receive capital support from the parent on an ongoing basis and in the event of distress.
 
Managerial support is reflected in the deployment of senior management personnel from the Home Credit group, and involvement of senior management personnel from Home Credit Group, in the operations of Home Credit India. Operational support is reflected in technical and functional inputs from Home Credit Group. The risk management tools used by Home Credit India are developed centrally by the Home Credit Group and are customised for India. The functional team of Home Credit India receives regular guidance from the corresponding teams across Asia and Europe. Home Credit India will continue to receive financial, managerial, and operational support from Home Credit Group. Any change in the credit risk profile of Home Credit Group and in the extent of its support to the Indian subsidiary remain key rating sensitivity factors.
 
* Moderate credit profile of parent, Home Credit Group BV:
Home Credit Group BV's credit risk profile is driven by that of two of its largest subsidiaries, Home Credit China and Home Credit Russia while at the same time, Home Credit Group BV's operations in South and South East Asia region continue its strong growth and keep increasing this region's importance in Home Credit Group's performance.
 
Home Credit's China operations contribute to 57.97% of the total group's operating revenue down from 61.28% during the first half of 2019 and the extent of impact of Covid-19 on the Chinese operations especially collections and asset quality is yet to be assessed. CRISIL observed that Home Credit China had in the past withstood such headwinds and realigned itself to become profitable within a quarter. However, the impact of the same on the business and financial risk profile of China operations remains a key monitorable.
 
Home Credit Russia continues to maintain its steady performance and has been playing a key role in supporting Home Credit group's profitability. Home Credit and Finance Bank (including Kazakhstan operations) reported a net profit of 3.7 billion Ruble (around Rs 395 crore) in first half of 2020 as against 15.8 billion Russian Ruble (around Rs 1,674 crore) during 2019 (13.8 billion Russian Ruble (around Rs 1,463 crore)). Besides maintaining steady profitability, Home Credit Russia has also maintained its market position within Russia. As per company estimates, it had a market share to 22% within POS loans as of end 2019.
 
On a consolidated basis, Home Credit Group BV had reported a loss of 619 million Euros in first half of 2020 against a profit of 400 million Euros for 2019. The profitability of the group was primarily impacted by aggressive impairment losses of 1,791 million Euros in first half of 2020 against 1,823 million Euros in 2019. As on June 30, 2020, of the overall retail loan portfolio of Home Credit Group (99.6% of total portfolio), about 10.3% was recognised as portfolio under moratorium based on moratoria set in individual countries and 2.7% of the portfolio was identified as Covid-impacted portfolio wherein the performing contracts over a prescribed time moved to 30+dpd post Covid. The remaining 87% was classified as non-Covid portfolio and would continue to be monitored. In the first half of 2020, the stage-2 assets of Home Credit Group increased by 52% to 3.2 billion Euro from 2.1 billion Euro as on December 31, 2019. Against the same the provisioning coverage was 34% as on June 30, 2020. The provisioning coverage for stage-3 assets was 51% as on June 30, 2020. The incremental impact on the profitability of the group because of the stage-2 assets for full year 2020 remains a key monitorable and rating sensitivity factor.
 
However, CRISIL understands Home Credit Group is strategically important to PPF Group, one of the largest investment groups in Central and Eastern Europe accounting for around 55% of the latter's total assets and would support Home Credit Group in case of any stress. Shareholders of PPF Group publicly acknowledge the strategic importance of Home Credit Group BV, and share the key performance highlights of this company and its subsidiaries with bankers during their annual bankers' meet. Home Credit Group receives funding support from PPF Group in the form of equity capital and unsecured loans, and will continue to do so. The ability of PPF Group is expected to be adequate in case of any stress in the group given the high amount of liquid assets of 9,824 million Euro (~ Rs 78,500 crore) as on December 31, 2019.
 
* Adequate capitalisation:
Home Credit India is adequately capitalised, as reflected in its networth and adjusted gearing of Rs 2,494 crore and 2.3 times, respectively, as on June 30, 2020. The networth coverage for net non-performing assets (NPAs) is also comfortable, as the company maintains a high provisioning level. Home Credit India has received regular equity infusion from the parent, with the last round of Rs 400 crore infusion done in January 2019. Further, the parent through various entities has been providing debt funding on regular basis and Group debt funding stood at Rs 4,363 crore as on June 30, 2020. Adjusted for this group debt, the gearing based on external indebtedness stood at just 0.6 times as on June 30, 2020.
 
* Moderate resource profile:
Home Credit India benefits from funding support from Home Credit group. Most of its bank facilities are backed by corporate guarantee from Home Credit Group BV. The company has availed most of its debt from foreign banks. To diversify its resource profile, Home Credit India has been raising funds via non-convertible debentures, CPs, ECBs and securitisation on a regular basis. The company has availed debt from domestic banks, non-banking financial companies (NBFCs), Mutual Funds and Financial Institutions (FI's). CRISIL believes Home Credit group will continue to support the resource profile of the Indian subsidiary if needed to help raise debt to fund growth. The resource profile is primarily supported by borrowings from the parent group of 76% as on June 30, 2020 (48% in the form of ECBs and 28% in the form of Group bonds), bank borrowings at 16%, NCDs from domestic institutions at 3% and securitisation another 6% of total borrowings. Home Credit India is in process of diversifying resources from domestic sources but given the current funding scenario for non-banks, they have been able raise to majority of funds through securitisation route in fiscal 2020. Excluding securitisation, the company has raised Rs 357 crore in fiscal 2020 (including rollover of WCDL facility).
 
* Improving market position:
Home Credit India's operations have grown at a significant pace during the last 2 years. The assets under management stood at Rs 7,634 crore as on June 30, 2020 as against Rs 1952 crore as on March 31, 2017. In terms of portfolio breakup, the company had around 83% of its portfolio towards cash loans (unsecured personal loans), 16% towards POS loans and 1% for others. Given that its customer segment, significant customer origination are new to credit, is relatively difficult to address, and that the product segment is very operationally intensive, it faces limited competition. Over the medium term, with its distribution network now in place, Home Credit India is expected to deepen its penetration in the 365 cities and towns in which it is present. Additionally, the company is also expected to expand its presence in organised retail consumer durable segment and furniture financing.  Through this, the company will target to acquire customers who wish to buy consumer durable products.
 
In the near term, due to the challenges linked to Covid-19 pandemic on field operations, weak economic indicators and vulnerability of customer segment, the company has focused on collections with disbursements remaining low. Home Credit India's assets under management stood at Rs 7,997 crore as on March 31, 2020 and it de-grew to Rs 7,634 crore as on June 30, 2020. CRISIL expects the company to remain cautious and calibrated in its growth strategy this fiscal.
 
Weaknesses
* Weak asset quality:
The asset quality metrics of Home Credit India continue to remain high with gross non-performing assets (GNPA) of 7.84% as on March 31, 2020. Including the loans written-off the overall weak assets (GNPA including write-off to AUM) were 12% as on June 30, 2020 against 17% as on March 31, 2020 (13% as on March 31, 2019).  Home Credit India had written-off Rs 928  crore in fiscal 2020 with about Rs 392 crore in Q4 of fiscal 2020 owing to change in write-off policy to 270+ days in March 2020 from 360+ days previously. Additionally, Home Credit India has also written-off Rs 238 crore in Q1 of fiscal 2021.   CRISIL understands that the credit costs are expected to be higher in the near term because of the change in the write-off policy and also change in classification of borrowers to higher days past due (dpd) buckets, who were in 0+dpd as on February 29, 2020.
 
Home Credit India extended moratorium only to borrowers who did not have any overdue payments as on February 29, 2020. As on August 31, 2020, only about 8% of borrowers, equivalent to 10% of AUM, have not paid a single EMI during the entire moratorium period of 6 months. The monthly collections of Home Credit India has improved over the past 6 months although it still remains below pre-covid levels. The collection efficiency² in September 2020 is estimated at 75% as compared to 57% in June 2020. Ability to sustain the increasing trend in collections in the coming months will remain a key monitorable. CRISIL estimates pressure on asset quality metrics to continue in the near term because of the current economic environment and relatively weaker credit profiles of the borrowers.
 
* Earnings profile to be impacted due to higher credit costs
Till fiscal 2019, Home Credit India's earning profile was constrained by high provisioning and operating expenses given the substantial investments in building its infrastructure. In fiscal 2020, with the continued improvement in scale resulting in operating efficiencies as well as control on various expense lines, the company was able to improve its pre-provisioning operating profitability significantly. In terms of credit costs, the company changed its write-off policy to 270+ days in March 2020 from 360+ days previously. Consequently, the provisions and write-offs were at Rs 1050 crore in fiscal 2020 with about Rs 341 crore being accounted in Q4 of fiscal 2020. Despite the same, Home Credit India turned profitable (PBT level) for the first time since it started operations in India. The company reported profit before tax of Rs 117 crore in fiscal 2020 against a loss before tax of Rs 86 crore in fiscal 2019.
 
In fiscal 2021, CRISIL estimates that the earnings profile will be impacted due to lower pre-provisioning profitability and higher credit costs on expectation of higher slippages due to Covid-19 related stress. Since Home Credit India extended moratorium only to borrowers who did not have any overdue payments as on February 29, 2020, there was no standstill on asset classification for the overdue accounts. Consequently, CRISIL believes that the credit costs will be higher in the near term because of this change in classification of borrowers to higher days past due (dpd) buckets, who were in 0+dpd as on February 29, 2020 and also due to change in the write-off policy.

Home Credit India's liquidity profile is healthy with cash and equivalents of Rs 1,104 crore and unutilised working capital bank lines of Rs 98 crore. This is expected to be comfortable to manage debt repayments over the next 3 months which includes NCD repayments of Rs 622 crore to Group entities, which is likely to be rolled over on need basis. Factoring only non-group debt repayments, the liquidity levels cover over 6 months of outflows assuming zero collections.
 
The ALM profile for Home Credit India as on June 30, 2020, was comfortable with no cumulative negative mismatches. Further the company, in the prevailing market condition, has been able to roll over its existing working capital lines from and has raised funds through a few securitisation transactions in Q2-2021.

CRISIL believes Home Credit India will remain strategically important to, and will continue to receive financial, managerial, and operational support from, Home Credit Group BV.
 
Rating Sensitivity Factors
Upward factors
* Improvement in earnings profile of Indian operations with return on managed assets (RoMA) moving above 3%
* Ability to diversify the resource profile of the company with higher share of local borrowings and addition of public sector bank
 
Downward factors
* Deterioration in credit profile of the parent Home Credit Group B.V
* Change in support philosophy of the global parent Home Credit Group B.V towards Indian operations
* Sharp deterioration of asset quality wherein gross NPA remains above 10%
 
About Home Credit India
Home Credit India launched operations in 2012 and has presence in 20 states in India. The company initially offers loans for purchase of consumer durables (primarily consisting of mobile phones), and subsequently offers cash loans to borrowers with good repayment track record. It also has other portfolio, which is not expected to increase materially. The assets under management was at Rs 7,634 crore as on June 30, 2020 of which, 16% was for purchase of consumer durables, 83% comprised cash loans and 1% for others.
 
About Home Credit Group BV
The Home Credit group was founded in 1997. The main shareholder of Home Credit Group BV is PPF Financial Holdings B.V.  (91.1% stake). The Home Credit group has a presence in 10 countries through subsidiaries. It predominantly offers loans for purchase of consumer durables (primarily consisting of mobile phones) and unsecured personal loans (cash loans). It focuses on lending to borrowers with limited or no credit history. It operates as a bank in Russia and Kazakhstan, where it offers retail banking products such as credit cards, deposits, and current accounts. The Home Credit group also has banking operations in Czech Republic in the name of Airbank. Over the years, the Home Credit group has developed expertise in assessing customers with no credit score by collecting basic demographic and financial information of the prospective borrowers.
 
As on June 30, 2020, Home Credit Group BV (on a consolidated basis) had a gross loan portfolio of EUR 18.4 billion (Approximately Rs 1,47,000 crore), of which, around 22% comprised loans for buying consumer durables (primarily mobile phones), 71% was cash/personal loans, 4% revolving loans and residual 3% for mortgages, vehicle finance and corporate loans. It had assets of EUR 22.5 billion (Approximately Rs 1,80,000 crore) and a networth of EUR 2.1 billion (Approximately Rs 16,500 crore).
 
About PPF Group
PPF Group is one of the largest investment groups in Central and Eastern Europe. The main shareholder of PPF Group is Mr Petr Kellner (holds 98.92% stake in PPF Group). According to Forbes, Mr Kellner is the richest man in the Czech Republic, with a networth of USD 15.5 billion (about INR 82,838 crore). PPF Group has been investing in sectors such as banking, financial services, telecommunications, mechanical engineering, biotech and real estate. It is mainly active in Europe, Russia, Asia, and the US. As on December 31, 2019, it had assets of EUR 48.6 billion (about INR 388,900 crore).

 ¹Collection Efficiency = Total Collections (excluding prepayments) / Scheduled Current Billing assuming no moratorium
 2Collection Efficiency = Total Collections (excluding prepayments) / Scheduled Current Billing assuming no moratorium.

Any other information: Not applicable