Rating Rationale
April 01, 2020 | Mumbai
Home Credit India Finance Private Limited
Rating outlook revised to 'Stable', rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.800 Crore
Long Term Rating CRISIL BBB+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
 
Rs.75 Crore Non Convertible Debentures  CRISIL BBB+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
Rs.350 Crore Non Convertible Debentures CRISIL BBB+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
Rs.400 Crore Non Convertible Debentures CRISIL BBB+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
Rs.222 Crore Non Convertible Debentures  CRISIL BBB+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
Rs.375 Crore Non Convertible Debentures   CRISIL BBB+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
Rs.225 Crore Non Convertible Debentures   CRISIL BBB+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
Rs.50 Crore Non Convertible Debentures   CRISIL BBB+/Stable (Outlook revised from 'Positive' and rating reaffirmed)
Rs.825 Crore Non Convertible Debentures   CRISIL BBB+/Stable (Outlook revised from 'Positive' and Rating withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revised its outlook on the long-term bank facilities and other debt instruments of Home Credit India Finance Private Limited (Home Credit India) to 'Stable' from 'Positive' while reaffirming the rating at 'CRISIL BBB+'.
 
The revision of outlook is primarily due to uncertainty associated with the current market environment due to Covid-19 related lockdown and the potential impact on collections and asset quality on the operations of Home Credit India as well as on the China operations of parent which contributed to around 60% of the total gross loans. Nevertheless, CRISIL notes the standalone performance of Home Credit India has improved since fiscal 2019, with the company reporting profits amidst controlled operating expenses due to various measures taken which include change in sourcing model, reduction of expenses, diversification of income sources and employee count rationalisation through various departments. Any major impact on the collections or asset quality thereby impacting profitability of Home Credit India will remain a key monitorable.
 
CRISIL has also withdrawn its rating on the non-convertible debentures of Rs 825 crore (See Annexure 'Details of Rating Withdrawn' for details) in line with its withdrawal policy.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.
 
Home Credit India's liquidity profile is healthy with cash and equivalents of Rs 772 crore and unutilised bank lines of Rs 572 crore. This is expected to be adequate to manage this period wherein asset-side collections will be negligible while liability-side outflows continue as per schedule. CRISIL notes that the recent announcement by Reserve Bank of India (RBI) permitting Banks to provide a moratorium to their borrowers may also provide additional relief, if availed by the company for its bank loans.
 
The portfolio of Home Credit India has crossed Rs 8000 crore mark as on December 31, 2019 as against Rs 1952 crore as on March 31, 2017. 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. With its distribution network now in place, Home Credit India is expected to deepen its penetration in the 265 cities and towns as on December 31, 2019 in which it is present and continue to grow its portfolio at a healthy pace.
 
The portfolio scale up has also resulted in attendant operating efficiencies; this, coupled with the focus on manpower optimization, has also benefitted Home Credit India's earning profile with the company turning profitable (at a pre-tax level and net profit) on a quarterly basis.
 
Home Credit's China operations contribute to around 60% of the total group's operating revenue 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 15.8 billion Russian Ruble (around Rs 1674 crore) during 2019 as against 13.8 billion Russian Ruble (around Rs 1463 crore) during the corresponding period previous year. 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 year end 2019.
 
The ratings also continue to factor in the adequate capitalisation and moderate resource profile of Home Credit India. The company had a networth of Rs 2555 crore and comfortable gearing of 2.6 times as on December 31, 2019. However, Home Credit India has modest asset quality, underpinned by the inherently weak credit risk profile of borrowers and unsecured nature of advances. Their earnings profile is also modest, albeit improving, on the back of high operating and credit costs.

Analytical Approach

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.  

Key Rating Drivers & Detailed Description
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 BV. Home Credit Group group infused equity capital of close to Rs 2539 crore in Home Credit India between fiscal 2017 and 2019. During fiscal 2019, Home Credit group has infused around Rs 1000 crore, thereby providing support during the recent tight liquidity conditions. 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 performance. Home Credit China's is expected to improve with structural strengthening of its market position. It also has, adequate leverage, moderate risk position, and strong funding profile and liquidity. Home Credit Russia too has a strong market position, adequate capital and earnings, moderate risk position, and adequate funding and liquidity. Home Credit Group BV is also 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. 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 BV receives funding support from PPF Group in the form of equity capital and unsecured loans, and will continue to do so.
 
* Adequate capitalisation:
Home Credit India is adequately capitalised, as reflected in its networth and adjusted gearing of Rs 2555 crore and 2.6 times, respectively, as on December 31, 2019. The networth coverage for net non-performing assets (NPAs) is also comfortable, as the company maintains a high provisioning level. Further, the capital position is also expected to supported by the accretions given the company has turned profitable at profit before tax and net profit level in the first three quarters of fiscal 2020. 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 funding support, Rs 4613 crore as on December 31, 2019 against Rs 2823 crore as on March 31, 2019.
 
* 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 started raising funds via non-convertible debentures, CP's, ECB's and securitization on a regular basis. The company has availed debts from a few 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 71% (43% in the form of ECBs and 28% in the form of Group bonds), bank borrowings constitute to 14%, NCDs from domestic institute constitute 6%, term loans from domestic institute constitute 1% and securitisation constitute another 8% 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 till Q3 of fiscal 2020. Excluding securitisation, the company has raised Rs 240 crore in first three quarters of fiscal 2020. However, post December 2019, the company has raised Rs 197 crore from various other sources excluding securitisation.
 
* Improving market position:
Home Credit India's operations have grown at a significant pace during the last 2 years. The portfolio has around Rs 8000 crore mark (stood at Rs 8097 crore) as on December 31, 2019 as against Rs 1952 crore as on March 31, 2017. In terms of portfolio breakup, the company had around 78% of its portfolio towards cash loans (unsecured personal loans), 21% towards POS loans and 1% for others. Given that the distribution network is now in place, covering around 265 cities and towns as on December 31, 2019, the focus will be now on leveraging this network to scale up the portfolio. Additionally, the company is also expanding its presence in organised retail consumer durable segment and furniture's financing.  Through this, the company will target to acquire customers who wish to buy consumer durable products. Growth is therefore expected to remain strong going ahead.
 
Weaknesses
* Modest asset quality:
Gross GNPAs, at 7.09% as on December 31, 2019 continue to remain high. This is largely because of the inherently modest credit risk profiles of its borrowers, who have limited credit history. Gross NPAs had increased in fiscal 2019 because of the attempt to shift customers to non-cash modes of repayment, which temporarily impacted collection efficiencies and seem to be declining in fiscal 2020. The company has policy wherein it write-offs post 360 days. Therefore, if asset quality measured in terms of Gross NPAs + write-offs (during nine months fiscal 2020), it would be around Rs 1110 crore (about 13.7% of loan portfolio). Though delinquencies are expected to remain range-bound, supported by sound risk management systems, asset quality will remain susceptible to risks inherent in the unsecured lending business. The company is likely to benefit from the increasing penetration and use of credit bureaus. The company has also been improving its internal risk management systems and refining its underwriting models by creating its own customer data base and increasingly focusing on customer behaviour level analysis. Nevertheless, its delinquencies are expected to remain higher than the industry average for NBFCs because of unsecured lending. Ability to continuously strengthen risk management systems and keep credit costs under control, while scaling up operations, remains a monitorable. Any major impact on the collections or asset quality due to Covid-19 linked challenges will be a key rating sensitivity factor.
 
* Modest, but improving earnings profile:
Home Credit India's earning profile has been constrained by high provisioning and operating expenses given the substantial investments in building its infrastructure. However, it is now on an improving trend. In fiscal 2019, operating expenses by average managed assets were 19% while provisions were 11%; these offset the benefits of high net interest margins (NIMs) and resulted in a return on managed assets (RoA) of (-)1.3%. In fiscal 2020, the continued improvement in scale resulting in operating efficiencies as well as control on various expense lines, the company has also been able to improve its earnings profile. Home Credit India now turned profitable (PBT and net profit level) on a quarterly basis. The company reported profit before tax of Rs 159 crore during nine months fiscal 2019 against a loss before tax of Rs 156 crore in first 9 months of fiscal 2019. Provisioning costs are expected to remain high because of higher delinquencies and conservative provisioning policy compared with regulatory requirements. Nevertheless, CRISIL believes that Home Credit India's profitability will improve over the medium term driven primarily by operating efficiencies. However, the impact of COVID on the collections and asset quality remain key monitorable given the uncertainty of lockdown.
Liquidity Adequate

The liquidity position of Home Credit India is supported by the nature of its loan portfolio (CD loans: 21% of portfolio) which is short term and with a repayment period of about 6 months. HC India has debt payments of Rs 665 crore between April 2020 and end June 2020. Further, HC India had cash and equivalents of Rs 772 crore as on March 25, 2020 and unutilised bank lines lines of Rs 572 crores. This is expected to be adequate to manage this period wherein asset-side collections will be negligible while liability-side outflows continue as per schedule. CRISIL notes that the recent announcement by Reserve Bank of India (RBI) permitting Banks to provide a moratorium to their borrowers may also provide additional relief, if availed by the company for its bank loans.

Outlook: Stable

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
 
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 increase 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. Its loan book was Rs 8097 crore as on December 31, 2019 of which, 21% was for purchase of consumer durables, 78% 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 December 31, 2019, Home Credit Group BV (on a consolidated basis) had a gross loan portfolio of EUR 21.8 billion (Approximately INR 1,74,400 crore), of which, around 24% comprised loans for buying consumer durables (primarily mobile phones), 70% was cash/personal loans, 4% revolving loans and residual 2% for mortgages, vehicle finance and corporate loans. It had assets of EUR 26.6 billion (Approximately INR 2,12,800 crore) and a networth of EUR 2.9 billion (Approximately INR 23,200 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 June 30, 2019, it had assets of EUR 47.3 billion (about INR 378,400 crore).

Key Financial Indicators
As On/For The Period Ended December 31 Unit 2019 2018*
Total assets Rs cr 9631 6854
Total income Rs cr 2314 1848
Profit after tax Rs cr 14 318
Gross NPA % 7.1 8.4
Gearing Times 2.6 2.1
Return on assets % 0.2 7.1
*the company reported profit during nine months of fiscal 2019 mainly through deferred tax adjustment

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)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity Date Issue Size
(Rs. Cr)		 Rating Assigned 
with Outlook
INE172V07061 Debentures 27-Jul-17 12.05% 31-Jul-20 350 CRISIL BBB+Stable
INE172V07079 Debentures 8-Aug-17 12.07% 31-Aug-20 375 CRISIL BBB+Stable
INE172V07087 Debentures 28-Aug-17 11.92% 31-Aug-20 225 CRISIL BBB+Stable
INE172V08051 Debentures 7-Nov-17 14.25% 9-Nov-20 50 CRISIL BBB+Stable
INE172V07103 Debentures 6-Oct-17 12.28% 15-Oct-20 222 CRISIL BBB+Stable
INE172V07111 Debentures 24-Oct-17 13.20% 6-Nov-20 400 CRISIL BBB+Stable
INE172V07129 Debentures 27-Mar-18 13.12% 26-Mar-21 75 CRISIL BBB+Stable
NA Long Term Bank Facility NA NA NA 653.5 CRISIL BBB+Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 146.5 CRISIL BBB+Stable
 
Annexure - Details of Rating Withdrawn
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue  Size
(Rs. Cr)
INE172V07046 Debentures 6-Dec-16 12.21% 13-Dec-19 225
INE172V07053 Debentures 18-Jan-17 11.27% 31-Jan-20 250
INE172V07095 Debentures 13-Dec-17 14.25% 13-Dec-19 350
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  1697.00
31-03-20  		CRISIL BBB+/Stable      29-03-19  CRISIL BBB+/Positive  23-03-18  CRISIL BBB+/Stable  12-12-17  CRISIL BBB+/Stable  CRISIL BBB/Stable 
                    25-10-17  CRISIL BBB+/Stable   
                    06-10-17  CRISIL BBB+/Stable   
                    20-07-17  CRISIL BBB/Stable   
                    09-01-17  CRISIL BBB/Stable   
Fund-based Bank Facilities  LT/ST  800.00  CRISIL BBB+/Stable      29-03-19  CRISIL BBB+/Positive  23-03-18  CRISIL BBB+/Stable  12-12-17  CRISIL BBB+/Stable  CRISIL BBB/Stable 
                    25-10-17  CRISIL BBB+/Stable   
                    06-10-17  CRISIL BBB+/Stable   
                    20-07-17  CRISIL BBB/Stable   
                    09-01-17  CRISIL BBB/Stable   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Long Term Bank Facility 653.5 CRISIL BBB+/Stable Long Term Bank Facility 673.5 CRISIL BBB+/Positive
Proposed Long Term Bank Loan Facility 146.5 CRISIL BBB+/Stable Proposed Long Term Bank Loan Facility 126.5 CRISIL BBB+/Positive
Total 800 -- Total 800 --
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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