| Indostar Home Finance Private Limited | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings rating on the long-term bank facilities and debt instruments of Indostar Home Finance Private Limited (IndoStar Home), a 100% subsidiary of IndoStar Capital Finance Ltd (IndoStar; rated ‘CRISIL AA-/Stable/CRISIL A1+’) continues to centrally factor in the expectation of strong financial, operational and management support from the parent, IndoStar, both on an ongoing basis and in the event of any distress. However, IndoStar Home’s operations are in an early stage and the company’s ability to successfully scale up the business needs to be demonstrated.
In line with RBI's measures for Covid-19 pandemic, Indostar Home had given moratorium to its borrowers. While the collection efficiency was impacted during the initial months of the moratorium, collections have inched up since then. However, the second wave of Covid-19 pandemic has resulted in intermittent lockdowns and localised restrictions. This could lead to some delays in collections in upcoming months due to impact on the underlying borrower cash flows. Further, any change in the behaviour of borrowers on payment discipline can affect delinquency levels.
Indostar Home did witness an inch up in overall delinquencies during the nine months ended December 31, 2020. The gross stage 3 (GS3) assets were at 1.8% as on December 31, 2020. Under the RBI’s August 2020 Resolution Framework for COVID-19-related Stress, Indostar Home did not restructure accounts in its loan portfolio as on December 31, 2020. Going forward, with the second wave of Covid-19 pandemic, Indostar Home’s ability to manage collections and asset quality will remain a key monitorable. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has analysed the standalone business and financial risk profiles of IndoStar Home, and has factored in the strong support the company is likely to receive from its parent, IndoStar, on an ongoing basis and in times of distress. |
Key Rating Drivers & Detailed Description Strengths:
Strong support from IndoStar is expected given the strategic importance of IndoStar Home as a critical business growth driver for the mortgage lending business. IndoStar Home, the housing finance arm, is expected to add scale and granularity to IndoStar’s current lending book. IndoStar will ensure support to IndoStar Home given its 100% shareholding in the company, the shared name and brand, commonality in board of directors, as well as operational synergies (including common treasury) between the two. Also, the strong parentage along with common treasury is expected to benefit IndoStar Home in raising funds at competitive rates.
The total net-worth was around Rs 220 crore with a gearing and adjusted gearing (on-book borrowings + securitization/assignment) of 2.6 times and 3.4 times, respectively, as on December 31, 2020 (Rs 186 crore, 3.1 times and 3.6 times, respectively, as on March 31, 2020). In fiscal 2019, the company raised Rs 140 crore capital from the parent, IndoStar. Further, the company is expected to receive additional capital, as and when required. The gearing is expected to remain comfortable at 6-7 times over the medium term.
Weakness:
With IndoStar Home’s operations having commenced from October 2017, the company is in a nascent stage, with loan portfolio remaining unseasoned. Overall assets under management is currently small at Rs 915 crore as on December 31, 2020 (Rs 831 crore as on March 31, 2020; Rs 548 crore as on March 31, 2019; Rs 51 crore as on March 31, 2018). The company, currently, operates from 64 shared branches of IndoStar in eleven states, but operations are expected to gradually expand across geographies with setting up of independent branches as well. While the current GNPA ratio was low at 1.8% as on December 31, 2020, the company’s ability to maintain adequate asset quality and successfully scale up the business 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 is expected to help grow the loan book responsibly. |
Liquidity: Strong IndoStar Home has a comfortable ALM profile with positive cumulative mismatches in the up to 1 year buckets as on March 31, 2021 (excluding unutilised bank lines). As on March 31, 2021, it had liquidity of Rs 47.25 crore (Rs 22.25 crore of cash and cash equivalents, Rs 5.00 crore of liquid investments, Rs 20.00 crore of unutilized bank lines). Against the same, IndoStar Home has total debt obligations (principal and interest) of Rs 42.79 crore over the next three months till June 2021. |
Outlook: Stable CRISIL Ratings believes IndoStar Home will continue to benefit from strong financial, operational, and managerial support from IndoStar. |
Rating Sensitivity factors Upward factors:
Downward Factor
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About the Company IndoStar Home, a wholly owned subsidiary of IndoStar, was incorporated in October 2017. The company offers various individual housing loans. It has operations in 10 states with ~60% of the total portfolio in the Southern states of the country. Tamil Nadu has the highest share of portfolio (36%) followed by Maharashtra (23%), Andhra Pradesh (12%) and Telangana (11%). Presently, the company operates from 64 locations with a majority of them being shared branches, however it plans to increase the number of independent branches in near future.
The company reported a profit after tax (PAT) of Rs 14 crore on a total income (net of interest) of Rs 51 crore in fiscal 2020 as against a loss of Rs 19 crore on a total income of Rs 20 crore in the previous fiscal. For the first nine months of fiscal 2021, the company reported a PAT of Rs 34 crore on a total income (net of interest) of Rs 71 crore. |
Key Financial Indicators
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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)
^yet to be issued *outstanding as on March 31, 2021 |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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Criteria Details
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