Home Credit India Finance Private Limited Rating outlook revised to ‘Negative’; rating reaffirmed
Rating Action
1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised the outlook on the long-term debt instruments and bank facilities of Home Credit India Finance Private Limited (Home Credit India) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BBB+’.
The revision in outlook reflects the substantial impact on the earnings profile of the company due to high provisioning and write-offs on the loan book. The rating action also factors in the weak performance of parent, Home Credit Group B.V. (Home Credit Group / Group) primarily driven by continued challenges in the China operations.
Home Credit India’s assets under management (AUM) stood at Rs 5,007 crore as on June 30, 2021, a de-growth of 37% as compared to Rs 7,997 crore as on March 31, 2020, at the onset of the pandemic. The de-growth in AUM was primarily due to write-offs of around Rs 2,860 crore in fiscal 2021 (equivalent to 35.7% of opening AUM for fiscal 2021) as the pandemic significantly impacted ground-level operations and collections. In terms of asset quality, the 90+ dpd as on March 31, 2021 stood at 1.62% as compared to 7.84% a year ago. In addition to the gross NPA, about 2.08% of AUM was restructured as on March 31, 2021. Due to high credit costs, the company reported loss of Rs 1,221 crore for fiscal 2021.
Amidst the second Covid-19 wave, the asset quality metrics continued to deteriorate, Home Credit India reported loss in the first quarter ended June 30, 2021, albeit at much lower levels than fiscal 2021. 90+ dpd was at 9.91% as on June 30, 2021 while the company reported loss of Rs 44 crore during the quarter. Home Credit India’s monthly collection efficiency[1] had improved to 91% by March 2021 but it deteriorated again due to the second wave and clocked 89% for June 2021. With the easing of lockdown related restrictions in July, the collection efficiency has improved to 96% though still below pre-covid level. However, any further drop in collection efficiency going ahead, may add to pressure on the earnings profile of the company.
At parent level too, Home Credit Group posted loss of Euro 584 million for the year ended December 31, 2020 (as compared to profit of euro 400 million a year ago). The group took accelerated impairment loss during the first half of the calendar year as their business was impacted across regions. However, CRISIL Ratings notes that the group has posted marginal profits during second half of the year. Nevertheless, the primary growth and profitability driver for the group remains the China business (contributing to around 60-65% of the gross loans and as similar proportion of profits in the past). China market has been facing challenges even pre-Covid due to regulatory crackdown and attendant asset quality issues. And the pandemic in 2020 exacerbated the challenges. Both in 2019 and 2020, over 72% and 83% respectively of impairment loss at group level were attributable to China operations. As per CRISIL Ratings estimates, the China business has continued to report loss even during second half of the year due to high impairment and lower net interest income on a significantly reduced gross loan book. Consequently, the group profitability for CY 2021 will be highly correlated to revival of China business. This will be a key rating sensitivity factor as the rating of Home Credit India factors in the group’s credit profile and support to India operations.
In terms of India operations, CRISIL Ratings notes that the parent infused Rs 624 crore of equity back in December 2020 and March 2021. This has partly helped cushion the impact on capitalisation metrics. Adjusted gearing (including securitisation and assignment) stood at 2.3 times as on June 30, 2021 (2.4 times as on March 31, 2020). CRISIL Ratings also derives comfort that over 93% of borrowings are either directly from parent or guaranteed by the parent. Hence, adjusted gearing based on non-promoter external indebtedness is even lower at just 0.2 times (not adjusted to deferred tax assets). The company is also carrying high liquidity of Rs 1,160 crore as on June 30, 2021 in the form of cash equivalents and unutilised bank lines.
The ratings continue to reflect Home Credit India’s strategic importance to, and expectation of continued strong support from, the parent, Home Credit Group. The ratings also factor in the company’s adequate capitalisation and moderate resource profile backed by significant funding from group.
Consequent to redemption, CRISIL has also withdrawn its rating on debentures of Rs 747 crore (See Annexure 'Details of rating withdrawn' for details) in line with its withdrawal policy. CRISIL has received independent confirmation that these instruments are fully redeemed. [1] Collection efficiency = total collections (including overdues but excluding prepayments) /scheduled billing for the month |
Analytical Approach CRISIL Ratings has evaluated the standalone business and financial risk profile of Home Credit India. Additionally, the overall ratings of Home Credit India continue to be centrally driven by its strategic importance to, and expectation of strong support from its parent, Home Credit Group. CRISIL Ratings has applied the parent notch-up rating criteria by factoring in the credit profile of Home Credit Group. |
Key Rating Drivers & Detailed Description Strengths:
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 3,163 crore in Home Credit India between fiscal 2017 and 2021. During fiscal 2021, Home Credit group has infused equity of around Rs 624 crore, thereby providing support to capitalisation profile. 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.
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 54.55% of the total group’s operating revenue in 2020 down from 59.47% in 2019. Further the share of China in group’s total gross loans has decreased from 55.10% in 2020 from 59.65% in 2019. The gross loans of Home Credit China’s operations as on December 31, 2020 were Euro 8,005 million and the net loans were Euro 6,698 million indicating overall ECL provisioning of Euro 1,305 million, equivalent to 16.3% of the gross loans in 2020. The gross and net loans in 2019 were Euro 12,992 million and Euro 11,955 million respectively with ECL provisions at 8% of gross loans. Additionally, CRISIL Ratings believes that there would be significant write-off in the loans in Home Credit China, information for which is not available in the public domain. CRISIL Ratings also observed that the cost of risk ratio was at 15.9% of average gross loans for Home Credit China in 2020. Since cost of risk refers to impairment loss based on gross loans, CRISIL Ratings estimates it to be at Euro 1,670 million. The consolidated total impairment loss was Euro 2,351 million as per the financials of Home Credit Group B.V. for 2020. Hence, bulk of impairment is stemming from Home Credit China operations. CRISIL ratings understands that in addition to the Covid-19 related disruption, the implementation of lending related curbs on the unlicensed lending market in China had impacted the business of Home Credit China, though it is one of the first non-banking entity to receive license in China. CRISIL Ratings observed that Home Credit China had in the past withstood such headwinds and realigned itself to become profitable within a 1-2 quarters. However, the incremental impact of the above 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 Ruble 8.8 billion for 2020 as against Ruble 15.8 billion during 2019. The gross loans for Home Credit Russia’s operations have decreased by 18% in local currency (Ruble) to Ruble 225.1 billion in 2020 from Ruble 273.3 billion in 2019 and the impairment loss for 2020 have increased marginally by 3.7% in 2020 to Ruble 11.2 billion.
On a consolidated basis, Home Credit Group had reported a loss Euro 584 million in 2020 against Profit of euro 400 million in 2019. The loss for the group were primarily from the first half of 2020 wherein the Group reported loss of Euro 619 million. The profitability of the group was primarily impacted by aggressive impairment loss of Euro 2,351 million in 2020 against 1,823 million Euros in 2019. As on December 31, 2020, of the overall retail loan portfolio of Home Credit Group (99.4% of total portfolio), about 12.6% was recognised as portfolio under moratorium based on moratoria set in individual countries and 0.2% 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 87.2% was classified as non-Covid portfolio and would continue to be monitored. In 2020, the stage-2 assets of Home Credit Group increased by 48.6% to 3.1 billion Euro from 2.1 billion Euro as on December 31, 2019. Against the same the provisioning coverage was 34.8% as on December 31, 2020. The provisioning coverage for stage-3 assets was 44.2% as on December 31, 2020. The cost of risk for 2020 was 12.9% against 8.5% in 2019. The incremental impact on the profitability of the group because of the stage-2 assets and additional impact if any from the global scenario of Covid-19 remains a key monitorable and rating sensitivity factor.
However, CRISIL Ratings understands Home Credit Group is strategically important to PPF Group, one of the largest investment groups in Central and Eastern Europe accounting for around 47% 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 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 6,388 million Euro (~ Rs 51,000 crore) as on December 31, 2020.
Home Credit India is adequately capitalised. Despite the substantial loss, the networth of the company stood at Rs 1,853 crores as on June 30, 2021 as against Rs 2,494 crores as on March 31, 2020, supported largely by the Rs 624 crore infusion done in fiscal 2021. Consequently, the networth coverage for net non-performing assets (NPAs) remained comfortable, as the company maintains a high provisioning level. Further, the parent through various entities has been providing debt funding on regular basis and Group debt funding stood at Rs 2,791 crore as on June 30, 2021. Adjusted for this group debt, the gearing based on external indebtedness (after excluding borrowings guaranteed by Home Credit Group) stood at just 0.2 times (not adjusted to deferred tax assets) as on June 30, 2021. However, the incremental impact on the capital profile from the provisioning expense and therefore on the gearing levels remains a key monitorable.
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 raised funds through non-convertible debentures, 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 66% as on June 30, 2021 (in the form of ECBs), working capital loans from banks at 21%, term loans from bank and financial institutions at 10%, NCDs from domestic institutions at 1% and securitisation another 3% of total borrowings. Further, of the overall borrowings, the debt guaranteed by Home Credit Group was about 27% as on June 30, 2021. Home Credit India is in process of diversifying resources from domestic sources and has raised majority of funds through securitisation route in fiscal 2021. Excluding securitisation of Rs 452 crore, the company has raised Rs 390 crore in fiscal 2021 (excluding rollover of WCDL facility) which includes Rs 50 crore of non-convertible debentures from a PSU Bank.
Weaknesses:
In fiscal 2021, the gross NPA position after reaching a peak of 9.4% in June 2020 decreased to 1.6% as on March 31, 2021, primarily on account of write-off of about Rs 2,860 crore done in fiscal 2021 (equivalent to 35.7% of opening AUM for fiscal 2021). With the onset of second wave, the GNPA inched up to 9.9% as on June 30, 2021 with limited write offs (0.3% of opening AUM for fiscal 2022) in the first quarter. Additionally, Home Credit India had restructured assets of 2.8% of portfolio as on June 30, 2021. The higher amount of write-off in the portfolio in fiscal 2020 and fiscal 2021 is also owing to change in write-off policy to 270+ days in March 2020 from 360+ days previously.
The impact on the asset quality metrics for Home Credit India is visible in the collection efficiencies remaining below pre-covid levels till July 2021. Last year, the collection efficiencies had ranged between 75-93%% during September 2020 to March 2021 which resulted in the substantial impact on the asset quality metrics for the full year.
While CRISIL Ratings understands that the collections efficiency of the portfolio generated from July 2020 has been at par with pre-covid level at about 98% in March 2021, the ability of the company to sustain collections and consequently improve asset quality metrics remains a key monitorable.
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 credit costs have been higher since fiscal 2020 also contributed by the macro economic scenario in addition to change in write-off policy. However, 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, the operating expenses of the company further reduced, however, the credit costs were elevated at Rs 2,523 crore primarily from the write-offs resulting in a loss of Rs 1,221 crore for fiscal 2021. Currently, of the outstanding AUM, 20% of the book was impacted substantially post Covid which could result in incremental slippages and also lead to higher write-offs in the current fiscal which could keep profitability subdued. Nevertheless, the company has maintained conservative provisioning of 52% for stage-2 assets as on March 31, 2021 which are expected to be utilised in fiscal 2022. However, the incremental impact from the slippages on the credit cost and inturn on the overall earnings profile remains a key monitorable. |
Liquidity: Adequate The asset liability maturity (ALM) profile for Home Credit India as on June 30, 2021, was comfortable with no cumulative negative mismatches upto 1 year bucket. Home Credit India’s liquidity profile is healthy with cash and equivalents of Rs 1,054 crore and unutilised working capital bank lines of Rs 106 crore. This is expected to be comfortable to manage debt repayments over the next 6 months of Rs 457 crore. |
Outlook: Negative 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. However, improvement in the global performance of the parent and control over asset quality and earnings profile of the company remains a key monitorable. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company 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. |
About Home Credit Group B.V. 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 9 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 December 31, 2020, Home Credit Group (on a consolidated basis) had a gross loan portfolio of Euro 14.5 billion (Approximately Rs 1,16,000 crore), of which, around 18% comprised loans for buying consumer durables (primarily mobile phones), 72% was cash/personal loans, 7% revolving loans and residual 3% for mortgages, vehicle finance and corporate loans. It had assets of Euro 18.5 billion (Approximately Rs 1,48,000 crore) and a networth of Euro 1.9 billion (Approximately Rs 15,500 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 Family (holds 98.93% stake in PPF Group). 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, 2020, it had assets of Euro 39.7 billion (about INR 317,000 crore). |
Key Financial Indicators
*As per RBI prudential norms |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 - Details of Rating Withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Long Term Bank Facility | 202 | CRISIL BBB+/Negative |
| Long Term Bank Facility | 165 | CRISIL BBB+/Negative |
| Long Term Bank Facility | 98.5 | CRISIL BBB+/Negative |
| Long Term Bank Facility | 20 | CRISIL BBB+/Negative |
| Long Term Bank Facility | 48 | CRISIL BBB+/Negative |
| Proposed Long Term Bank Loan Facility | 266.5 | CRISIL BBB+/Negative |
Criteria Details
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