| Indostar Home Finance Private Limited | ||||
| Rated amount enhanced for Bank Debt | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AA-/Negative/CRISIL A1+’ ratings on the bank loan facilities and debt instruments of Indostar Home Finance Private Limited (IndoStar Home).
IndoStar Home is a 100% subsidiary of IndoStar Capital Finance Ltd (IndoStar Capital; ‘CRISIL AA-/Negative/CRISIL A1+’). The ratings on IndoStar Home factor in the expectation of strong financial, operational and management support from the parent, IndoStar Capital, both on an ongoing basis and in the event of any distress.
IndoStar Home commenced its lending operations in October 2017 and operates as an affordable housing financier with presence in tier 3 and 4 towns in southern and western states. As of September 30, 2023, the company’s loan book stood at Rs 1,894 crore of which home loans constituted 78% of assets under management (AUM) while loans against property (LAP) formed 22%.
In the initial stage of operations, earnings were constrained due to high operating expenses because of heavy investments in setting up technology and branch infrastructure. The company broke even in fiscal 2020 with a profit after tax (PAT) of Rs 14.2 crore against a loss of Rs 19.0 crore in the previous fiscal. It reported a PAT of Rs. 22.2 crore and return on assets (RoA) of 2.3% in first half of fiscal 2024 (versus Rs 29.4 crore and 3.8%, respectively for the corresponding period of previous fiscal). Ability to successfully and sustainably scale up business in a profitable manner will remain a key rating monitorable.
The ‘Negative’ outlook on the long-term ratings is driven by the outlook on Indostar Capital and factors in the lack of diversification in their funding profile with delay in augmenting bank funding. While traction in fund raising, (as seen with Rs 3643 crore raised in fiscal 2023 of which Rs 3243 crore was raised after initial disclosure of control deficiencies in May 2022 and further Rs 1,555 crore through NCDs in the first half of fiscal 2024), led to pick up in disbursement momentum, the bank funding pipeline is yet to pick up. Also, while overall asset quality metrics have improved over the last fiscal, inherent vulnerabilities in the legacy corporate book can impact asset quality and profitability metrics.
The rating factors in the expectation of continued support from the promoter, Brookfield Asset Management {Brookfield; rated 'A-/Stable/A-1' by S&P Global Ratings (S&P)}, who played an instrumental role in arranging sizeable funds for IndoStar Capital through regular engagement with stakeholders, as well as with the formation of the new management.
The rating also takes into account the series of corrective actions taken by Indostar Capital in the aftermath of the control deficiencies identified previously, which include strengthening of risk and controls management frameworks and governance mechanism and focusing on building a retail portfolio in a scalable manner. The ratings further factor in IndoStar Capital's strong capitalisation, traction in disbursements and sequential improvement in earnings profile and asset quality.
CRISIL Ratings will continue to monitor fund raising by IndoStar, especially from a diverse set of banks and other lenders, as well as progress on the resolution plan for various identified corporate accounts. These will be key rating sensitivity factors. |
Analytical Approach CRISIL Ratings has analysed the standalone business and financial risk profiles of IndoStar Home and has factored in the benefits from the strong ultimate shareholders. |
Key Rating Drivers & Detailed Description Strengths: Benefits from majority ultimate ownership by Brookfield Brookfield, Canada-based global alternative asset manager, is the largest shareholder with a 56.20% stake. Brookfield made its first investment in the financial services space in IndoStar, with capital injection of Rs 1,225 crore in May 2020.
Besides direct equity funding, Brookfield has also provided access to IndoStar to secure new debt financing via their relationships with various financial institutions. They have also actively supported in putting in place the new management team, talent and leadership at IndoStar, and positioned it to achieve growth and a steadily improving earnings profile.
IndoStar Home is also expected to benefit from the majority ownership by Brookfield, given its strategic importance as a critical business growth driver for the mortgage lending business. The company is expected to add scale and granularity to the lending book of the parent. As the IndoStar group realigned its business model and underwriting, affordable housing was identified as a key focus area. Therefore, Brookfield has remained closely involved in the business operations of the company.
Adequate capitalisation The parent infused equity of Rs 250 crore in IndoStar Home in fiscal 2022. Consequently, networth increased to Rs 499 crore as on March 31, 2022, from Rs 215 crore a year ago. Networth stood at 559 crore as on September 30, 2023. Gearing and adjusted gearing (on-book borrowing + securitisation and direct assignment) stood at 1.8 times and 2.5 times, respectively as on September 31, 2023, against 1.6 times and 2.1 times on March 31, 2023. Gearing is expected to gradually increase to a steady state of around 4 - 5 times over the medium term as the loan book scales up. Overall CRAR stood at 70.8% as on September 30, 2023, well above the regulatory requirement, which will support in increasing scale of operations.
Weakness: Early stage of operations With IndoStar Home’s operations having commenced from October 2017, the company is yet in the initial stage of operations, with a relatively unseasoned loan portfolio. Overall AUM is modest at Rs 1,894 crore as on September 30, 2023, and Rs 1,623 crore as on March 31, 2023, (Rs 1,406 crore as on March 31, 2022). Disbursements picked up to Rs 411 crore for the first half of fiscal 2024 as compared to Rs 197 crore for corresponding period of previous fiscal and Rs 487 crore for the full year 2023. The company operates from 139 branches (31 shared branches with IndoStar Capital) in 22 states, but operations are expected to gradually expand across geographies with setting up of independent housing finance branches. Delinquencies remained stable, with gross stage 3 assets at 1.3% as on September 30, 2023, versus 1.3% as on March 31, 2023. Ability to maintain asset quality as the business scales up will be a key monitorable. |
Liquidity: Adequate The ALM profile shows positive cumulative mismatches in the up to 1 year bucket as on September 30, 2023 (including sanctioned and documented unutilised bank lines). As on November 30, 2023, the company had liquidity of Rs 205 crore (Rs 159 crore of cash and cash equivalents and Rs 46 crore of unutilised bank lines). Against the same, IndoStar Home has total debt obligations (principal and interest) of Rs 77.196 crore for the three months ended February 29, 2024. |
Outlook: Negative CRISIL Ratings believes delay in diversifying bank funding can have adverse impact on business performance of IndoStar Capital. Basis our analytical approach, any rating impact on IndoStar Capital would impact IndoStar Housing as well. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company IndoStar Home, a wholly owned subsidiary of IndoStar Capital Finance Ltd, was incorporated in October 2017. The company offers various individual housing loans. It has operations across eight states, with substantial proportion of the total portfolio in the southern states of the country. Presently, the company operates from 139 locations, being shared with the parent. However, it plans to increase the number of independent branches in the near future.
IndoStar Home reported profit after tax (PAT) of Rs 22 crore on total income (net of interest expense) of Rs 92 crore in first half of fiscal 2024 as against Rs 29 crore and Rs 81 crore, respectively, in the corresponding period of previous fiscal. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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